Todays Canada jobs report brought mixed signals:
The 88,000 job decrease fell well short of economists’ forecasts for a gain of 10,000 and was the biggest decline since January 2009 when the economy was dealing with the global financial crisis, Statistics Canada said on Friday.
The drop was driven by a 137,000 decline in part-time work, the biggest on record, which eclipsed a 49,000 increase in full-time positions. The unemployment rate rose to 5.9 per cent from December’s revised 5.8 per cent.
Average hourly wages jumped 3.3 per cent from last January, the strongest since March 2016. Ontario, Canada’s most populous province, raised the minimum wage to C$14 ($11.11) an hour at the start of 2018, making it the highest in the country.
…
The Canadian dollar weakened against the greenback following the report before reversing to trade modestly firmer.Market bets that the bank will hold in March edged up to 92.1 per cent after the data, though odds of a hike by May were at nearly 80 per cent. The central bank has raised rates three times since last July.
[Update: This is very strange; the linked Globe story is now re-routed to a different story focussing on the effect of the Ontario Minimum Wage hike; the statistics regarding market odds can still be found on-line, though, in a Reuters story titled UPDATE 2-Canada sheds most jobs since 2009, leaving room for central bank to pause]
Overall, though, it was a good day for US equities:
U.S. equities ended their worst week in two years on a positive note, but rate-hike fears that pushed markets into a correction remain as investors await American inflation figures on Feb. 14.
The S&P 500 tumbled 5.2 percent in the week, its steepest slide since January 2016, jolting equity markets from an unprecedented stretch of calm. At one point, stocks fell 12 percent from the latest highs, before a furious rally Friday left the equity benchmark 1.5 percent higher on the day. Still, the selloff has wiped out gains for the year.
Signs mounted that jitters spread to other assets, with measures of market unrest pushing higher in junk bonds, emerging-market equities and Treasuries. The Cboe Volatility Index ended at 29, almost three times higher than its level Jan. 26. . The VIX’s bond-market cousin reached its highest since April during the week, and a measure of currency volatility spiked to levels last seen almost a year ago.
…
•The S&P 500 Index rose 1.5 percent as of 4 p.m. in New York.
•The Dow Jones Industrial Average climbed 1.4 percent and the Nasdaq 100 added 1.7 percent.
…
•The yield on 10-year Treasuries rose two basis points to 2.85 percent.
Junk bonds? What was that about junk bonds:
The U.S. junk-bond market just finished its worst week in two years as stock market turmoil intensified.
The bonds lost 1.5 percent on the week, the worst performance since February 2016, when oil prices cratered toward multi-decade lows, Bloomberg Barclays index data show. The average spread on high-yield bonds on Friday — or the premium investors seek to hold such notes instead of safer government debt — surged 0.23 percentage point on the Bloomberg Barclays high-yield index, climbing to 3.69 percentage points. That’s the biggest move since the Brexit vote roiled global markets in June 2016.
The Bank of Canada has released a working paper by Marie Chen and Corey Garriott titled High-Frequency Trading and Institutional Trading Costs, which I think is very good because it confirms my prejudices:
Using bond futures data, we test whether high-frequency trading (HFT) is engaging in back running, a trading strategy that can create costs for financial institutions. We reject the hypothesis of back running and find instead that HFT mildly improves trading costs for institutions. After a rapid increase in the number of HFTs, trading costs as measured by implementation shortfall decrease by 27 basis points for smaller-sized positions ($2–$10 million notional). For larger-sized positions there is no significant effect. We explain the improvement as being the consequence of HFT reducing effective spreads and per-trade price impacts.
The paper begins with an overview:
High-frequency trading (HFT) is a computerized trading strategy that derives revenue from trading a security for a short period of time, often holding a long or short position in a security for mere moments before exiting the position. This new style of trading has been a source of controversy because it is unclear how its short-termism can be of any value to society. A large literature has grown to address the question: see “The Economics of High-Frequency Trading: Taking Stock” (Menkveld 2016, Annual Review of Financial Economics). The general result is that HFT is automating (for good or for ill) a set of trading activities that have historically been performed by human beings. This research paper supports the literature using the case of Canadian bond futures.
… and an explanation of what “back-running” is, and (perhaps inadvertently) a condemnation of the gross incompetence that is the hallmark of institutional money management (emphasis added):
One cause for concern is that HFT might use its technology to detect when large financial institutions are trading and then trade to move prices against them. This strategy would be profitable because it would exploit a need at a financial institution to trade, either because the institution must fill an order from a client or because it must act on new information. HFT could exploit this need by “back running”: buying when the institution buys, causing the price to rise more than it would have, and then selling at the aggravated high price. This would create costs for the institution as it pays a higher price. The cost matters to society, as institutions manage most of our savings. While the strategy is nothing new, HFT is arguably going to be better at it than humans were.
You see those emphasized phrases? “need … must … must”? That’s what the problem is, nothing to do with HFT. The problem is with the structure and attitudes of the institutional money management business. When you go to market with a vertical demand curve or a horizontal supply curve, you’re going to get taken to the cleaners one way or another and quite right too.
Somewhere along the line between the ultimate client and the guy pushing the button on the trading desk is somebody who said “need … must … must” and thereby costs the ultimate client a lot of money. Just because a trade might have been good at 3:00pm prices doesn’t mean a trade executed at 3:01pm prices will be good … hell, the 3:00:00.0030pm prices might not be any good. If you can’t walk away from a trade, you’re no damn good to anybody and you should be cleaning restrooms for a living.
What we have in the whole HFT debate, as I have pointed out until the Assiduous Readers are sick and tired of hearing me say it, is the fact that a pack of prep-school boys working for daddy’s friends as portfolio managers are having their lunch eaten by scruffy computer geeks who didn’t go to the right schools and don’t know the right people, they don’t like it and they don’t have what it takes to figure out how to compete.
I should also point out, with respect to the concern about the cost mattering to society, that the purpose of public markets is not to provide investors with nice returns; investment returns are a mere means to an end. The purpose of public markets is to transfer capital from savers to operating companies and all questions regarding market structure must be examined with respect to this question.
However, the authors go on to summarize their results:
In this paper, we investigate whether HFT is indeed loading costs on institutions in this manner. We find no evidence that it is trading in the same direction as institutions when they are building large positions in Canadian bond futures. In fact, HFT trades in the other direction, absorbing the institutional trading. This is consistent with HFT’s usual role in automating the services provided by a human financial intermediary. To drive home the point, we show that trading costs for institutions improve after more HFTs begin trading the bond futures. The reason for this is that HFT, in competing to trade with institutions, diminishes effective spreads and price impacts—a result that has been found in a variety of studies.
And, as far as the Canadian preferred share market is concerned …
Click for Big
| 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 | -1.3875 % | 2,894.2 |
| FixedFloater | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -1.3875 % | 5,310.6 |
| Floater | 3.43 % | 3.62 % | 61,123 | 18.22 | 4 | -1.3875 % | 3,060.5 |
| OpRet | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.1012 % | 3,144.8 |
| SplitShare | 4.67 % | 4.27 % | 66,139 | 4.12 | 5 | -0.1012 % | 3,755.5 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.1012 % | 2,930.2 |
| Perpetual-Premium | 5.43 % | 4.92 % | 65,401 | 14.32 | 20 | -0.3116 % | 2,836.9 |
| Perpetual-Discount | 5.39 % | 5.37 % | 73,311 | 14.84 | 14 | -0.4023 % | 2,952.0 |
| FixedReset | 4.26 % | 4.61 % | 162,738 | 4.23 | 101 | -0.7314 % | 2,506.6 |
| Deemed-Retractible | 5.15 % | 5.76 % | 92,862 | 5.76 | 28 | -0.4985 % | 2,904.2 |
| FloatingReset | 3.09 % | 3.03 % | 41,961 | 3.74 | 10 | -0.5027 % | 2,759.9 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| TRP.PR.D | FixedReset | -3.47 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-02-09 Maturity Price : 22.36 Evaluated at bid price : 22.80 Bid-YTW : 4.85 % |
| TRP.PR.E | FixedReset | -2.63 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-02-09 Maturity Price : 22.91 Evaluated at bid price : 23.30 Bid-YTW : 4.73 % |
| TRP.PR.C | FixedReset | -2.63 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-02-09 Maturity Price : 17.77 Evaluated at bid price : 17.77 Bid-YTW : 4.80 % |
| TRP.PR.B | FixedReset | -2.51 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-02-09 Maturity Price : 16.69 Evaluated at bid price : 16.69 Bid-YTW : 4.82 % |
| TRP.PR.F | FloatingReset | -2.17 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-02-09 Maturity Price : 20.76 Evaluated at bid price : 20.76 Bid-YTW : 3.82 % |
| SLF.PR.J | FloatingReset | -2.08 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 19.29 Bid-YTW : 6.85 % |
| RY.PR.J | FixedReset | -1.91 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-02-09 Maturity Price : 23.14 Evaluated at bid price : 24.10 Bid-YTW : 4.78 % |
| BAM.PF.G | FixedReset | -1.79 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-02-09 Maturity Price : 23.13 Evaluated at bid price : 24.12 Bid-YTW : 5.03 % |
| PWF.PR.A | Floater | -1.77 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-02-09 Maturity Price : 20.00 Evaluated at bid price : 20.00 Bid-YTW : 3.01 % |
| TD.PF.B | FixedReset | -1.68 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-02-09 Maturity Price : 22.97 Evaluated at bid price : 23.41 Bid-YTW : 4.59 % |
| BMO.PR.B | FixedReset | -1.65 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2022-02-25 Maturity Price : 25.00 Evaluated at bid price : 25.59 Bid-YTW : 4.18 % |
| IFC.PR.A | FixedReset | -1.65 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 20.26 Bid-YTW : 7.09 % |
| RY.PR.M | FixedReset | -1.64 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-02-09 Maturity Price : 23.02 Evaluated at bid price : 24.02 Bid-YTW : 4.66 % |
| TD.PF.I | FixedReset | -1.58 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2022-10-31 Maturity Price : 25.00 Evaluated at bid price : 24.95 Bid-YTW : 4.60 % |
| BAM.PF.B | FixedReset | -1.58 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-02-09 Maturity Price : 23.21 Evaluated at bid price : 23.73 Bid-YTW : 4.94 % |
| TD.PF.E | FixedReset | -1.49 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2020-10-31 Maturity Price : 25.00 Evaluated at bid price : 24.45 Bid-YTW : 4.63 % |
| BAM.PR.C | Floater | -1.47 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-02-09 Maturity Price : 16.75 Evaluated at bid price : 16.75 Bid-YTW : 3.64 % |
| RY.PR.H | FixedReset | -1.43 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-02-09 Maturity Price : 23.08 Evaluated at bid price : 23.50 Bid-YTW : 4.55 % |
| MFC.PR.N | FixedReset | -1.42 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.66 Bid-YTW : 5.23 % |
| BAM.PR.T | FixedReset | -1.41 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-02-09 Maturity Price : 21.03 Evaluated at bid price : 21.03 Bid-YTW : 5.01 % |
| RY.PR.Z | FixedReset | -1.39 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-02-09 Maturity Price : 22.97 Evaluated at bid price : 23.45 Bid-YTW : 4.52 % |
| TD.PF.D | FixedReset | -1.39 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-02-09 Maturity Price : 23.14 Evaluated at bid price : 24.17 Bid-YTW : 4.82 % |
| SLF.PR.A | Deemed-Retractible | -1.33 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.25 Bid-YTW : 6.90 % |
| CM.PR.O | FixedReset | -1.26 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-02-09 Maturity Price : 23.07 Evaluated at bid price : 23.51 Bid-YTW : 4.62 % |
| BAM.PF.F | FixedReset | -1.26 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-02-09 Maturity Price : 24.04 Evaluated at bid price : 24.38 Bid-YTW : 5.05 % |
| BIP.PR.D | FixedReset | -1.23 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2022-03-31 Maturity Price : 25.00 Evaluated at bid price : 24.99 Bid-YTW : 5.19 % |
| BAM.PR.Z | FixedReset | -1.21 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-02-09 Maturity Price : 22.97 Evaluated at bid price : 24.45 Bid-YTW : 5.02 % |
| BAM.PR.R | FixedReset | -1.20 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-02-09 Maturity Price : 20.56 Evaluated at bid price : 20.56 Bid-YTW : 5.05 % |
| TRP.PR.A | FixedReset | -1.18 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-02-09 Maturity Price : 20.90 Evaluated at bid price : 20.90 Bid-YTW : 4.73 % |
| BAM.PR.B | Floater | -1.18 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-02-09 Maturity Price : 16.79 Evaluated at bid price : 16.79 Bid-YTW : 3.63 % |
| BMO.PR.S | FixedReset | -1.16 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-02-09 Maturity Price : 23.30 Evaluated at bid price : 23.77 Bid-YTW : 4.58 % |
| GWO.PR.F | Deemed-Retractible | -1.16 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2018-03-11 Maturity Price : 25.00 Evaluated at bid price : 25.60 Bid-YTW : -14.62 % |
| MFC.PR.L | FixedReset | -1.16 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.08 Bid-YTW : 5.63 % |
| SLF.PR.H | FixedReset | -1.09 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.76 Bid-YTW : 5.84 % |
| GWO.PR.L | Deemed-Retractible | -1.09 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2018-03-11 Maturity Price : 25.25 Evaluated at bid price : 25.50 Bid-YTW : 0.99 % |
| MFC.PR.M | FixedReset | -1.08 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.78 Bid-YTW : 5.24 % |
| GWO.PR.T | Deemed-Retractible | -1.06 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.20 Bid-YTW : 5.85 % |
| GWO.PR.I | Deemed-Retractible | -1.06 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.41 Bid-YTW : 7.29 % |
| BAM.PR.K | Floater | -1.06 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-02-09 Maturity Price : 16.82 Evaluated at bid price : 16.82 Bid-YTW : 3.62 % |
| TRP.PR.H | FloatingReset | -1.03 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-02-09 Maturity Price : 17.33 Evaluated at bid price : 17.33 Bid-YTW : 3.64 % |
| TRP.PR.J | FixedReset | -1.02 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2021-05-31 Maturity Price : 25.00 Evaluated at bid price : 26.10 Bid-YTW : 4.43 % |
| BMO.PR.Y | FixedReset | -1.01 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2020-08-25 Maturity Price : 25.00 Evaluated at bid price : 24.50 Bid-YTW : 4.60 % |
| IFC.PR.E | Deemed-Retractible | -1.01 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.50 Bid-YTW : 5.69 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| NA.PR.E | FixedReset | 171,828 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-02-09 Maturity Price : 23.04 Evaluated at bid price : 24.71 Bid-YTW : 4.62 % |
| SLF.PR.B | Deemed-Retractible | 104,440 | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.70 Bid-YTW : 6.60 % |
| IGM.PR.B | Perpetual-Premium | 83,450 | YTW SCENARIO Maturity Type : Call Maturity Date : 2018-03-11 Maturity Price : 25.25 Evaluated at bid price : 25.52 Bid-YTW : -5.50 % |
| PWF.PR.L | Perpetual-Discount | 77,100 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-02-09 Maturity Price : 23.36 Evaluated at bid price : 23.65 Bid-YTW : 5.42 % |
| MFC.PR.B | Deemed-Retractible | 76,840 | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.16 Bid-YTW : 6.89 % |
| PWF.PR.P | FixedReset | 76,680 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-02-09 Maturity Price : 19.50 Evaluated at bid price : 19.50 Bid-YTW : 4.45 % |
| There were 44 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| BAM.PF.J | FixedReset | Quote: 25.10 – 26.10 Spot Rate : 1.0000 Average : 0.5931 YTW SCENARIO |
| TRP.PR.C | FixedReset | Quote: 17.77 – 18.53 Spot Rate : 0.7600 Average : 0.4656 YTW SCENARIO |
| TRP.PR.B | FixedReset | Quote: 16.69 – 17.50 Spot Rate : 0.8100 Average : 0.5282 YTW SCENARIO |
| IFC.PR.A | FixedReset | Quote: 20.26 – 20.71 Spot Rate : 0.4500 Average : 0.2705 YTW SCENARIO |
| BMO.PR.B | FixedReset | Quote: 25.59 – 26.00 Spot Rate : 0.4100 Average : 0.2384 YTW SCENARIO |
| MFC.PR.N | FixedReset | Quote: 23.66 – 24.07 Spot Rate : 0.4100 Average : 0.2395 YTW SCENARIO |