Continued uncertainty in the Treasury market continues to feed into equities:
U.S. stocks remained on unsteady footing as the bout of volatility that’s gripped global financial markets persisted amid signs that the rise in Treasury yields has yet to run its course.
Pressure Wednesday came from a weak 10-year note auction, sending the rate toward the four-year high that days ago sparked the biggest equity selloff in seven years. Stocks swung between gains and losses throughout the session before ending lower after heavy selling in the final 15 minutes of trading. Volume on U.S. exchanges topped 9 billion shares for a fourth straight day after surpassing that total just once in the past seven months.
The S&P 500 erased a gain that reached 1.2 percent at its highest and closed lower by 0.5 percent in the biggest reversal since 2015. The Dow Jones Industrial Average swung 500 points from peak to trough, and heavy selling in megacap technology shares pushed the Nasdaq indexes to losses of at least 0.9 percent. While the Cboe Volatility Index eased back from levels last seen in August 2015, at 26.84 it remains about 40 percent above its average since 1990.
Luke Kawa and Tracy Alloway of Bloomberg provided a bit more colour regarding the relationship between VIX products and equity prices:
Products such as XIV and its close relation, the ProShares Short VIX Short-Term Futures ETF (SVXY), aim to offer investors exposure to the inverse of the daily moves at the front portion of the VIX futures curve, and typically benefit from market tranquility.
The VIX futures curve is linked to the Cboe Volatility Index, often called the market’s “fear gauge,” which in turn is a measure of the implied volatility in the S&P 500 Index over the next month. (The VIX tends to move in the opposite direction of U.S. stocks.) Such products typically buy VIX futures as the index rises and sell them as it falls as they seek to maintain a constant degree of exposure to the underlying index.
…
It was a theory echoed by Barclays Plc analysts in a research note published after Monday’s sharp spike in the VIX. As volatility-related products scrambled to buy VIX futures in order to rebalance ahead of their 4:15 p.m. daily deadline to calculate the value of their underlying assets — they effectively pushed up the price of the contracts and eventually the index.Demand from leveraged VIX exchanged-traded products was “the major driver for the move post the cash close,” Barclays analysts led by Maneesh Deshpande said.
The NYT ran a piece on VIX daytrading last summer and there’s a suddenly woeful subreddit devoted to the topic.
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PerpetualDiscounts now yield 5.35%, equivalent to 6.96% interest at the standard equivalency factor of 1.3x. Long corporates now yield a little over 3.95%, so the pre-tax interest-equivalent spread is now about 300bp, unchanged from January 31.
| HIMIPref™ Preferred Indices These values reflect the December 2008 revision of the HIMIPref™ Indices Values are provisional and are finalized monthly |
|||||||
| Index | Mean Current Yield (at bid) |
Median YTW |
Median Average Trading Value |
Median Mod Dur (YTW) |
Issues | Day’s Perf. | Index Value |
| Ratchet | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.9932 % | 2,927.9 |
| FixedFloater | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.9932 % | 5,372.5 |
| Floater | 3.39 % | 3.56 % | 59,800 | 18.35 | 4 | 0.9932 % | 3,096.2 |
| OpRet | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.0623 % | 3,152.4 |
| SplitShare | 4.66 % | 4.27 % | 64,245 | 4.12 | 5 | 0.0623 % | 3,764.6 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.0623 % | 2,937.3 |
| Perpetual-Premium | 5.41 % | 4.90 % | 63,654 | 2.08 | 20 | 0.1111 % | 2,849.1 |
| Perpetual-Discount | 5.36 % | 5.35 % | 67,604 | 14.88 | 14 | 0.2210 % | 2,967.0 |
| FixedReset | 4.22 % | 4.54 % | 150,081 | 3.90 | 101 | 0.5061 % | 2,531.3 |
| Deemed-Retractible | 5.12 % | 5.73 % | 91,450 | 5.77 | 28 | 0.2639 % | 2,921.2 |
| FloatingReset | 3.03 % | 2.93 % | 42,028 | 3.75 | 10 | 0.2564 % | 2,773.4 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| PWF.PR.L | Perpetual-Discount | -1.42 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-02-07 Maturity Price : 23.24 Evaluated at bid price : 23.54 Bid-YTW : 5.44 % |
| HSE.PR.G | FixedReset | 1.00 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2020-06-30 Maturity Price : 25.00 Evaluated at bid price : 25.20 Bid-YTW : 4.48 % |
| HSE.PR.C | FixedReset | 1.01 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2019-12-31 Maturity Price : 25.00 Evaluated at bid price : 25.00 Bid-YTW : 4.79 % |
| BAM.PR.R | FixedReset | 1.06 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-02-07 Maturity Price : 21.00 Evaluated at bid price : 21.00 Bid-YTW : 5.00 % |
| TRP.PR.J | FixedReset | 1.07 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2021-05-31 Maturity Price : 25.00 Evaluated at bid price : 26.38 Bid-YTW : 4.06 % |
| SLF.PR.D | Deemed-Retractible | 1.08 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.53 Bid-YTW : 7.13 % |
| RY.PR.Z | FixedReset | 1.10 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-02-07 Maturity Price : 23.35 Evaluated at bid price : 23.82 Bid-YTW : 4.51 % |
| BAM.PR.B | Floater | 1.18 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-02-07 Maturity Price : 17.08 Evaluated at bid price : 17.08 Bid-YTW : 3.56 % |
| TRP.PR.E | FixedReset | 1.19 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-02-07 Maturity Price : 23.47 Evaluated at bid price : 23.85 Bid-YTW : 4.67 % |
| SLF.PR.G | FixedReset | 1.19 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 19.49 Bid-YTW : 7.21 % |
| MFC.PR.M | FixedReset | 1.22 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.13 Bid-YTW : 5.04 % |
| BAM.PF.F | FixedReset | 1.26 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-02-07 Maturity Price : 23.65 Evaluated at bid price : 24.91 Bid-YTW : 4.94 % |
| RY.PR.H | FixedReset | 1.32 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-02-07 Maturity Price : 23.47 Evaluated at bid price : 23.88 Bid-YTW : 4.53 % |
| BAM.PF.G | FixedReset | 1.43 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-02-07 Maturity Price : 23.42 Evaluated at bid price : 24.79 Bid-YTW : 4.92 % |
| PWF.PR.A | Floater | 1.50 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-02-07 Maturity Price : 20.30 Evaluated at bid price : 20.30 Bid-YTW : 2.97 % |
| SLF.PR.H | FixedReset | 1.52 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.08 Bid-YTW : 5.62 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| BAM.PF.A | FixedReset | 150,546 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-02-07 Maturity Price : 24.35 Evaluated at bid price : 24.85 Bid-YTW : 5.07 % |
| BNS.PR.A | FloatingReset | 138,104 | YTW SCENARIO Maturity Type : Call Maturity Date : 2018-04-25 Maturity Price : 25.00 Evaluated at bid price : 24.97 Bid-YTW : 0.57 % |
| BMO.PR.T | FixedReset | 132,900 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-02-07 Maturity Price : 23.41 Evaluated at bid price : 23.82 Bid-YTW : 4.52 % |
| W.PR.M | FixedReset | 81,520 | YTW SCENARIO Maturity Type : Call Maturity Date : 2021-10-15 Maturity Price : 25.00 Evaluated at bid price : 25.90 Bid-YTW : 4.26 % |
| CM.PR.O | FixedReset | 69,600 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-02-07 Maturity Price : 23.38 Evaluated at bid price : 23.81 Bid-YTW : 4.62 % |
| CM.PR.R | FixedReset | 66,982 | YTW SCENARIO Maturity Type : Call Maturity Date : 2022-07-31 Maturity Price : 25.00 Evaluated at bid price : 25.20 Bid-YTW : 4.25 % |
| There were 24 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| TRP.PR.G | FixedReset | Quote: 24.01 – 24.60 Spot Rate : 0.5900 Average : 0.3833 YTW SCENARIO |
| BIP.PR.B | FixedReset | Quote: 25.56 – 26.04 Spot Rate : 0.4800 Average : 0.3272 YTW SCENARIO |
| PWF.PR.L | Perpetual-Discount | Quote: 23.54 – 23.89 Spot Rate : 0.3500 Average : 0.2241 YTW SCENARIO |
| BAM.PR.T | FixedReset | Quote: 21.13 – 21.90 Spot Rate : 0.7700 Average : 0.6500 YTW SCENARIO |
| CU.PR.C | FixedReset | Quote: 22.28 – 22.60 Spot Rate : 0.3200 Average : 0.2297 YTW SCENARIO |
| PWF.PR.A | Floater | Quote: 20.30 – 20.53 Spot Rate : 0.2300 Average : 0.1438 YTW SCENARIO |