The Fed issued its FOMC Statement:
Information received since the Federal Open Market Committee met in December indicates that the labor market has continued to strengthen and that economic activity has been rising at a solid rate. Job gains have been strong, on average, in recent months, and the unemployment rate has remained low. Household spending has continued to grow strongly, while growth of business fixed investment has moderated from its rapid pace earlier last year. On a 12-month basis, both overall inflation and inflation for items other than food and energy remain near 2 percent. Although market-based measures of inflation compensation have moved lower in recent months, survey-based measures of longer-term inflation expectations are little changed.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. In support of these goals, the Committee decided to maintain the target range for the federal funds rate at 2-1/4 to 2-1/2 percent. The Committee continues to view sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective as the most likely outcomes. In light of global economic and financial developments and muted inflation pressures, the Committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate to support these outcomes.
In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.
Voting for the FOMC monetary policy action were: Jerome H. Powell, Chairman; John C. Williams, Vice Chairman; Michelle W. Bowman; Lael Brainard; James Bullard; Richard H. Clarida; Charles L. Evans; Esther L. George; Randal K. Quarles; and Eric S. Rosengren.
No changes were expected, so no surprises there – but notably:
While the Fed said continued U.S. economic and job growth were still “the most likely outcomes,” it removed language from its December policy statement that risks to the outlook were “roughly balanced” and struck language that projected “some further” rate hikes would be appropriate in 2019.
They also issued a Statement Regarding Monetary Policy Implementation and Balance Sheet Normalization:
After extensive deliberations and thorough review of experience to date, the Committee judges that it is appropriate at this time to provide additional information regarding its plans to implement monetary policy over the longer run. Additionally, the Committee is revising its earlier guidance regarding the conditions under which it could adjust the details of its balance sheet normalization program. Accordingly, all participants agreed to the following:
•The Committee intends to continue to implement monetary policy in a regime in which an ample supply of reserves ensures that control over the level of the federal funds rate and other short-term interest rates is exercised primarily through the setting of the Federal Reserve’s administered rates, and in which active management of the supply of reserves is not required.
•The Committee continues to view changes in the target range for the federal funds rate as its primary means of adjusting the stance of monetary policy. The Committee is prepared to adjust any of the details for completing balance sheet normalization in light of economic and financial developments. Moreover, the Committee would be prepared to use its full range of tools, including altering the size and composition of its balance sheet, if future economic conditions were to warrant a more accommodative monetary policy than can be achieved solely by reducing the federal funds rate.
Finally, they updated their Statement on Longer-Run Goals and Monetary Policy Strategy, reaffirming the 2% symmetrical inflation target and stating that their current estimates of the longer-run normal rate of unemployment is 4.4%, down from last year’s figure of 4.6%.
The IAIS (International Association of Insurance Supervisors) issued its January 2019 newsletter today, with a reminder that:
The IAIS is hosting an ICS stakeholder event. The meeting will provide Members and stakeholders with the opportunity to provide feedback on the ICS prior to the finalisation of ICS Version 2.0 for the monitoring period. The IAIS published the ICS Version 2.0 consultation document on 31 July 2018. The event will take place between 09.00 and 15.00 CET (Basel time) on 1 February 2019, at the BIS Tower in Basel, Switzerland.
Assiduous Readers will rememeber that the Comment Period Expired 2018-10-30 for IAIS Public Consultation on ICS 2.0; ICS 2.0 is the set of global insurance guidelines that, we hope, will include tighter rules on the going-concern loss-absorption ability of insurance company preferred shares … even if OSFI takes the lowest-trigger-possible approach with NVCC rules similar to banks.
I also note there is an “ICS Task Force” meeting in Basel on February 26.
PerpetualDiscounts now yield 5.72%, equivalent to 7.44% 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 345bp, a slight (and perhaps spurious) narrowing from the 350bp reported January 23.
| HIMIPref™ Preferred Indices These values reflect the December 2008 revision of the HIMIPref™ Indices Values are provisional and are finalized monthly |
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| 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 | -0.0911 % | 2,325.8 |
| FixedFloater | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.0911 % | 4,267.6 |
| Floater | 5.04 % | 5.38 % | 32,787 | 14.84 | 4 | -0.0911 % | 2,459.5 |
| OpRet | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.0803 % | 3,205.3 |
| SplitShare | 4.93 % | 4.74 % | 65,683 | 3.98 | 8 | -0.0803 % | 3,827.8 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.0803 % | 2,986.6 |
| Perpetual-Premium | 5.91 % | -5.49 % | 148,213 | 0.08 | 2 | 0.1990 % | 2,886.9 |
| Perpetual-Discount | 5.63 % | 5.72 % | 77,078 | 14.21 | 33 | 0.1321 % | 2,953.2 |
| FixedReset Disc | 5.14 % | 5.60 % | 221,907 | 14.60 | 65 | 0.1489 % | 2,199.9 |
| Deemed-Retractible | 5.41 % | 6.35 % | 94,977 | 8.15 | 27 | -0.0604 % | 2,935.5 |
| FloatingReset | 4.29 % | 5.29 % | 63,793 | 8.51 | 6 | -0.1870 % | 2,433.4 |
| FixedReset Prem | 5.13 % | 4.39 % | 255,819 | 2.18 | 17 | 0.0786 % | 2,525.0 |
| FixedReset Bank Non | 2.81 % | 4.24 % | 149,353 | 2.88 | 5 | -0.0250 % | 2,578.5 |
| FixedReset Ins Non | 5.09 % | 7.16 % | 134,153 | 8.22 | 22 | 0.3334 % | 2,184.7 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| BIP.PR.D | FixedReset Disc | -3.10 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-01-30 Maturity Price : 21.52 Evaluated at bid price : 21.90 Bid-YTW : 6.39 % |
| PWF.PR.P | FixedReset Disc | -2.84 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-01-30 Maturity Price : 14.35 Evaluated at bid price : 14.35 Bid-YTW : 5.88 % |
| CCS.PR.C | Deemed-Retractible | -2.43 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2030-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.08 Bid-YTW : 6.60 % |
| GWO.PR.R | Deemed-Retractible | -2.15 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2030-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.38 Bid-YTW : 6.78 % |
| IFC.PR.C | FixedReset Ins Non | -2.10 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2030-01-31 Maturity Price : 25.00 Evaluated at bid price : 18.61 Bid-YTW : 7.76 % |
| BAM.PR.B | Floater | -1.89 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-01-30 Maturity Price : 12.99 Evaluated at bid price : 12.99 Bid-YTW : 5.38 % |
| TRP.PR.K | FixedReset Disc | -1.44 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-01-30 Maturity Price : 22.93 Evaluated at bid price : 24.00 Bid-YTW : 5.85 % |
| ELF.PR.H | Perpetual-Discount | -1.38 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-01-30 Maturity Price : 23.37 Evaluated at bid price : 23.67 Bid-YTW : 5.85 % |
| RY.PR.S | FixedReset Disc | -1.23 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-01-30 Maturity Price : 21.38 Evaluated at bid price : 21.65 Bid-YTW : 5.09 % |
| EMA.PR.F | FixedReset Disc | -1.15 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-01-30 Maturity Price : 19.75 Evaluated at bid price : 19.75 Bid-YTW : 5.82 % |
| BIP.PR.A | FixedReset Disc | 1.01 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-01-30 Maturity Price : 20.00 Evaluated at bid price : 20.00 Bid-YTW : 6.80 % |
| BAM.PF.F | FixedReset Disc | 1.12 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-01-30 Maturity Price : 19.90 Evaluated at bid price : 19.90 Bid-YTW : 6.04 % |
| IFC.PR.G | FixedReset Ins Non | 1.21 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2030-01-31 Maturity Price : 25.00 Evaluated at bid price : 20.95 Bid-YTW : 6.87 % |
| TD.PF.J | FixedReset Disc | 1.24 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-01-30 Maturity Price : 21.69 Evaluated at bid price : 22.02 Bid-YTW : 5.25 % |
| SLF.PR.E | Deemed-Retractible | 1.25 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2030-01-31 Maturity Price : 25.00 Evaluated at bid price : 20.30 Bid-YTW : 7.08 % |
| MFC.PR.L | FixedReset Ins Non | 1.26 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2030-01-31 Maturity Price : 25.00 Evaluated at bid price : 17.68 Bid-YTW : 8.25 % |
| BAM.PF.D | Perpetual-Discount | 1.27 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-01-30 Maturity Price : 21.51 Evaluated at bid price : 21.51 Bid-YTW : 5.77 % |
| MFC.PR.J | FixedReset Ins Non | 1.29 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2030-01-31 Maturity Price : 25.00 Evaluated at bid price : 20.41 Bid-YTW : 7.16 % |
| RY.PR.J | FixedReset Disc | 1.32 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-01-30 Maturity Price : 21.48 Evaluated at bid price : 21.48 Bid-YTW : 5.32 % |
| TD.PF.E | FixedReset Disc | 1.34 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-01-30 Maturity Price : 21.56 Evaluated at bid price : 21.94 Bid-YTW : 5.31 % |
| SLF.PR.I | FixedReset Ins Non | 1.44 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2030-01-31 Maturity Price : 25.00 Evaluated at bid price : 20.39 Bid-YTW : 6.85 % |
| NA.PR.C | FixedReset Disc | 1.49 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-01-30 Maturity Price : 22.07 Evaluated at bid price : 22.53 Bid-YTW : 5.69 % |
| RY.PR.M | FixedReset Disc | 1.51 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-01-30 Maturity Price : 20.81 Evaluated at bid price : 20.81 Bid-YTW : 5.32 % |
| MFC.PR.K | FixedReset Ins Non | 1.55 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2030-01-31 Maturity Price : 25.00 Evaluated at bid price : 19.00 Bid-YTW : 7.64 % |
| BAM.PF.C | Perpetual-Discount | 1.74 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-01-30 Maturity Price : 21.01 Evaluated at bid price : 21.01 Bid-YTW : 5.85 % |
| VNR.PR.A | FixedReset Disc | 2.08 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-01-30 Maturity Price : 22.10 Evaluated at bid price : 22.57 Bid-YTW : 5.21 % |
| PWF.PR.T | FixedReset Disc | 2.13 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-01-30 Maturity Price : 19.15 Evaluated at bid price : 19.15 Bid-YTW : 5.60 % |
| NA.PR.G | FixedReset Disc | 2.33 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-01-30 Maturity Price : 21.65 Evaluated at bid price : 22.00 Bid-YTW : 5.38 % |
| BAM.PR.R | FixedReset Disc | 2.37 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-01-30 Maturity Price : 16.82 Evaluated at bid price : 16.82 Bid-YTW : 6.04 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| TD.PF.H | FixedReset Prem | 331,600 | YTW SCENARIO Maturity Type : Call Maturity Date : 2021-10-31 Maturity Price : 25.00 Evaluated at bid price : 25.36 Bid-YTW : 4.31 % |
| TD.PF.L | FixedReset Disc | 171,816 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-01-30 Maturity Price : 23.17 Evaluated at bid price : 25.06 Bid-YTW : 5.08 % |
| RY.PR.L | FixedReset Bank Non | 164,310 | YTW SCENARIO Maturity Type : Call Maturity Date : 2019-03-26 Maturity Price : 25.00 Evaluated at bid price : 24.94 Bid-YTW : 3.95 % |
| CM.PR.T | FixedReset Disc | 116,871 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-01-30 Maturity Price : 23.13 Evaluated at bid price : 24.94 Bid-YTW : 5.15 % |
| RY.PR.H | FixedReset Disc | 64,520 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-01-30 Maturity Price : 19.31 Evaluated at bid price : 19.31 Bid-YTW : 5.38 % |
| BNS.PR.I | FixedReset Disc | 61,101 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-01-30 Maturity Price : 22.16 Evaluated at bid price : 22.80 Bid-YTW : 4.89 % |
| There were 37 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| MFC.PR.Q | FixedReset Ins Non | Quote: 20.13 – 20.68 Spot Rate : 0.5500 Average : 0.3738 YTW SCENARIO |
| BIP.PR.D | FixedReset Disc | Quote: 21.90 – 22.31 Spot Rate : 0.4100 Average : 0.2749 YTW SCENARIO |
| IFC.PR.E | Deemed-Retractible | Quote: 22.98 – 23.50 Spot Rate : 0.5200 Average : 0.3941 YTW SCENARIO |
| GWO.PR.R | Deemed-Retractible | Quote: 21.38 – 21.90 Spot Rate : 0.5200 Average : 0.3975 YTW SCENARIO |
| IFC.PR.C | FixedReset Ins Non | Quote: 18.61 – 19.00 Spot Rate : 0.3900 Average : 0.2679 YTW SCENARIO |
| PWF.PR.P | FixedReset Disc | Quote: 14.35 – 14.89 Spot Rate : 0.5400 Average : 0.4219 YTW SCENARIO |