The FOMC announcement came today:
Information received since the Federal Open Market Committee met in June indicates that the labor market remains strong and that economic activity has been rising at a moderate rate. Job gains have been solid, on average, in recent months, and the unemployment rate has remained low. Although growth of household spending has picked up from earlier in the year, growth of business fixed investment has been soft. On a 12-month basis, overall inflation and inflation for items other than food and energy are running below 2 percent. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed.
…
In light of the implications of global developments for the economic outlook as well as muted inflation pressures, the Committee decided to lower the target range for the federal funds rate to 2 to 2-1/4 percent. This action supports the Committee’s view that sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective are the most likely outcomes, but uncertainties about this outlook remain.
…
The Committee will conclude the reduction of its aggregate securities holdings in the System Open Market Account in August, two months earlier than previously indicated.Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michelle W. Bowman; Lael Brainard; James Bullard; Richard H. Clarida; Charles L. Evans; and Randal K. Quarles. Voting against the action were Esther L. George and Eric S. Rosengren, who preferred at this meeting to maintain the target range for the federal funds rate at 2-1/4 to 2-1/2 percent.
But the tone for the future was relatively hawkish:
The Dow and S&P 500 suffered their biggest daily percentage drops since May 31 on Wednesday after the Federal Reserve cut interest rates for the first time in a decade, but remarks by Fed Chair Jerome Powell dampened expectations for further cuts going forward.
Based on the latest available data, the Dow Jones Industrial Average fell 336.26 points, or 1.24 per cent, to 26,861.76, the S&P 500 lost 33.07 points, or 1.10 per cent, to 2,980.11, and the Nasdaq Composite dropped 98.20 points, or 1.19 per cent, to 8,175.42.
In Toronto, the S&P/TSX composite index also dropped, closing down 0.36 per cent, or 59.49 points, at 16,406.56.
The five-year Canada yield was unchanged at 1.45%.
PerpetualDiscounts now yield 5.59%, equivalent to 7.27% interest at the standard equivalency factor of 1.3x. Long corporates now yield 3.36%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now an amazing 390bp, a significant widening from the 375bp reported July 24. We also saw a spread this wide on June 19 … but it’s pretty damn rare!
| 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 | 0.3681 % | 2,002.1 |
| FixedFloater | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.3681 % | 3,673.8 |
| Floater | 5.97 % | 6.09 % | 39,332 | 13.74 | 4 | 0.3681 % | 2,117.2 |
| OpRet | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.1182 % | 3,343.8 |
| SplitShare | 4.66 % | 4.66 % | 75,236 | 4.11 | 7 | -0.1182 % | 3,993.2 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.1182 % | 3,115.7 |
| Perpetual-Premium | 5.61 % | -18.18 % | 56,449 | 0.09 | 7 | 0.0168 % | 2,990.3 |
| Perpetual-Discount | 5.44 % | 5.59 % | 57,307 | 14.48 | 25 | 0.0160 % | 3,130.2 |
| FixedReset Disc | 5.41 % | 5.25 % | 166,992 | 15.00 | 69 | -0.1360 % | 2,129.9 |
| Deemed-Retractible | 5.22 % | 5.90 % | 66,140 | 7.93 | 27 | 0.0932 % | 3,121.2 |
| FloatingReset | 4.05 % | 4.42 % | 35,315 | 2.41 | 4 | 0.1986 % | 2,349.3 |
| FixedReset Prem | 5.13 % | 3.72 % | 159,888 | 1.88 | 17 | -0.0610 % | 2,601.4 |
| FixedReset Bank Non | 1.98 % | 4.05 % | 86,910 | 2.42 | 3 | -0.1489 % | 2,655.1 |
| FixedReset Ins Non | 5.24 % | 7.36 % | 84,716 | 8.04 | 22 | 0.0287 % | 2,175.7 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| TD.PF.D | FixedReset Disc | -2.07 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-07-31 Maturity Price : 20.37 Evaluated at bid price : 20.37 Bid-YTW : 5.14 % |
| HSE.PR.C | FixedReset Disc | -1.74 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-07-31 Maturity Price : 18.08 Evaluated at bid price : 18.08 Bid-YTW : 6.35 % |
| BIP.PR.F | FixedReset Disc | -1.34 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-07-31 Maturity Price : 21.40 Evaluated at bid price : 21.40 Bid-YTW : 6.04 % |
| NA.PR.G | FixedReset Disc | -1.25 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-07-31 Maturity Price : 20.49 Evaluated at bid price : 20.49 Bid-YTW : 5.34 % |
| RY.PR.Z | FixedReset Disc | -1.15 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-07-31 Maturity Price : 18.00 Evaluated at bid price : 18.00 Bid-YTW : 5.06 % |
| SLF.PR.J | FloatingReset | 1.06 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2030-01-31 Maturity Price : 25.00 Evaluated at bid price : 13.41 Bid-YTW : 10.52 % |
| BAM.PF.B | FixedReset Disc | 1.06 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-07-31 Maturity Price : 17.20 Evaluated at bid price : 17.20 Bid-YTW : 6.12 % |
| TRP.PR.G | FixedReset Disc | 1.11 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-07-31 Maturity Price : 18.25 Evaluated at bid price : 18.25 Bid-YTW : 6.02 % |
| BAM.PR.K | Floater | 1.14 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-07-31 Maturity Price : 11.50 Evaluated at bid price : 11.50 Bid-YTW : 6.09 % |
| MFC.PR.K | FixedReset Ins Non | 1.20 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2030-01-31 Maturity Price : 25.00 Evaluated at bid price : 18.52 Bid-YTW : 7.76 % |
| IFC.PR.A | FixedReset Ins Non | 1.35 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2030-01-31 Maturity Price : 25.00 Evaluated at bid price : 15.00 Bid-YTW : 9.39 % |
| EMA.PR.H | FixedReset Disc | 1.38 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-07-31 Maturity Price : 23.02 Evaluated at bid price : 24.40 Bid-YTW : 4.95 % |
| HSE.PR.A | FixedReset Disc | 1.49 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-07-31 Maturity Price : 12.25 Evaluated at bid price : 12.25 Bid-YTW : 6.29 % |
| TRP.PR.B | FixedReset Disc | 2.02 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-07-31 Maturity Price : 11.60 Evaluated at bid price : 11.60 Bid-YTW : 5.79 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| RY.PR.H | FixedReset Disc | 87,665 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-07-31 Maturity Price : 18.12 Evaluated at bid price : 18.12 Bid-YTW : 5.06 % |
| RY.PR.O | Perpetual-Discount | 31,723 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-07-31 Maturity Price : 23.62 Evaluated at bid price : 24.10 Bid-YTW : 5.06 % |
| TD.PF.K | FixedReset Disc | 31,720 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-07-31 Maturity Price : 20.40 Evaluated at bid price : 20.40 Bid-YTW : 5.14 % |
| MFC.PR.M | FixedReset Ins Non | 31,239 | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2030-01-31 Maturity Price : 25.00 Evaluated at bid price : 17.35 Bid-YTW : 8.28 % |
| SLF.PR.J | FloatingReset | 27,900 | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2030-01-31 Maturity Price : 25.00 Evaluated at bid price : 13.41 Bid-YTW : 10.52 % |
| RY.PR.M | FixedReset Disc | 27,506 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-07-31 Maturity Price : 19.28 Evaluated at bid price : 19.28 Bid-YTW : 5.19 % |
| There were 24 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| BMO.PR.B | FixedReset Prem | Quote: 25.60 – 26.00 Spot Rate : 0.4000 Average : 0.2387 YTW SCENARIO |
| TD.PF.D | FixedReset Disc | Quote: 20.37 – 20.85 Spot Rate : 0.4800 Average : 0.3286 YTW SCENARIO |
| NA.PR.G | FixedReset Disc | Quote: 20.49 – 20.85 Spot Rate : 0.3600 Average : 0.2482 YTW SCENARIO |
| PVS.PR.E | SplitShare | Quote: 25.65 – 25.99 Spot Rate : 0.3400 Average : 0.2329 YTW SCENARIO |
| BMO.PR.Z | Perpetual-Discount | Quote: 24.99 – 25.34 Spot Rate : 0.3500 Average : 0.2467 YTW SCENARIO |
| PWF.PR.R | Perpetual-Premium | Quote: 25.02 – 25.31 Spot Rate : 0.2900 Average : 0.1881 YTW SCENARIO |