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TXPR closed at 560.76, down 0.87% on the day. Volume today was 3.17-million, third-highest of the past thirty days, behind July 15 and July 16.
CPD closed at 11.27, down 0.62% on the day. Volume was 120,524, above the median of the past 30 trading days.
ZPR closed at 8.92, down 0.89% on the day. Volume of 606,262 was fourth-highest of the past 30 trading days.
Five-year Canada yields were up 3bp to 0.37% today.
A modest pull-back after two days of sharp increases.
I don’t have any particular insights into why the rally has paused, halted, or commenced a reverse (take your pick of the correct description). I will opine, though, that the LRCNs discussed on July 15 and July 16 are not really a big deal, although their existence is modestly favourable to the preferred share market.
If we look at the RBC Annual Report for 2007, we see (page 77 of the PDF) they had 2,344-million in preferreds outstanding and 3,494-million in Trust Capital Securities, their version of AT1 Capital at the time. Move forward to their Annual Report for 2019 we find 5,707-million in preferred shares (page 194 of the PDF) and no Trust Capital Securities at all (page 193 of the PDF).
In addition, we remember that the LRCNs can be included in Tier 1 Capital to a maximum amount of one-half the total amount of allowable AT1 capital (which includes preferred shares), so preferred shares of some kind will always be around, since even now they’re a lot cheaper from a treasury perspective than issuing common.
So I say, yes, it’s good for the preferred share market that LRCNs are allowed. Reduction of supply and all that. But all in all, we’re really just returning to the status quo ante. It remains to be seen whether spreads also return to the status quo ante.
Update: Every time I look at this, I get a bit more dubious about the beneficial effects of the nascent LRCN market on the preferred share market.
Just for fun, I decided to look up the statistics on one of the RBC TruCS – the TruCS Series 2013 was the first one I found. It was redeemed 2013-12-31 and was issued via a prospectus dated 2005-10-20. This prospectus is on SEDAR, so the Canadian Securities Administrators will not permit me to link to it directly, because investor-scum should not be looking at official regulatory documents, but you can find it via a search for “RBC Capital Trust Oct 21 2005 10:24:12 ET Final long form prospectus – English PDF 172 K”.
The indicated distribution on these things was:
Series 2015 entitles the holder to receive the
Indicated Distribution of: (i) $24.35 on the last day of June and December of each year commencing June 30, 2006 to and including December 31, 2015 provided that such date is a Regular Distribution Date, representing a
per annum yield of 4.87% of the initial issue price; and (ii) on Regular Distribution Dates following December 31, 2015, an amount equal to the result obtained by multiplying $1,000 by one half of the sum of the Bankers’ Acceptance Rate in effect during the Distribution Period immediately preceding the Relevant Distribution Date plus 150 basis points.
So we would call it 4.87% for the initial period, and BAs+150bp after the 2015 pretend-maturity. Other terms are pretty much as I remember them – all these AT1 issues were basically preferred shares wearing a false mustache so they could pass as bonds.
All very well and good, but spreads, man, spreads! What were preferreds doing around then? Well, as it happens, the HIMI PerpetualDiscount subindex on 2005-10-20 was trading to yield an average of … 4.90%. There were only seven issues included in it at the time, CM.PR.H, GWO.PR.H, MFC.PR.B, POW.PR.D, PWF.PR.K, SLF.PR.A and SLF.PR.B.
So in other words, the AT1 back then was basically trading even-yield pre-tax with PerpetualDiscounts. Just like, more or less, the USD AT1 recently issued by Scotiabank, as discussed on July 6, in that it was more or less even-yield, pre-tax, with a notional Canadian FixedReset preferred share, despite being in a different currency with a base-rate based on Treasuries, not Canadas.
So I get a bit more perplexed every day about how come the market popped.
Of course, all of this is based on a single data-point, of the RBC TruCS-2015. If anybody wants to help me out by looking up prospectuses and terms for all or some of the pre-2008 AT1 bank issues, I’ll put that together with the relevant preferred share yields and publish it all, with credit to anybody helping. We can’t wait for Bay Street analysts to do this! They’re busy – no sooner do they get to work than they have to go have lunch with a client and then it’s nap time … the days are just packed!
| 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 | 0.1665 % | 1,562.7 |
| FixedFloater | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.1665 % | 2,867.5 |
| Floater | 5.34 % | 5.37 % | 72,020 | 14.88 | 3 | 0.1665 % | 1,652.6 |
| OpRet | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.0228 % | 3,469.3 |
| SplitShare | 4.84 % | 4.81 % | 54,094 | 3.77 | 7 | -0.0228 % | 4,143.1 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.0228 % | 3,232.6 |
| Perpetual-Premium | 5.20 % | 5.21 % | 71,844 | 4.04 | 1 | -1.5972 % | 3,032.2 |
| Perpetual-Discount | 5.55 % | 5.59 % | 83,789 | 14.39 | 35 | -0.2660 % | 3,290.4 |
| FixedReset Disc | 5.68 % | 4.49 % | 150,628 | 15.88 | 75 | -0.3567 % | 1,990.1 |
| Deemed-Retractible | 5.29 % | 5.53 % | 80,078 | 14.41 | 27 | -0.2756 % | 3,239.2 |
| FloatingReset | 2.37 % | 2.71 % | 31,354 | 1.52 | 4 | 0.5095 % | 1,772.3 |
| FixedReset Prem | 5.40 % | 3.97 % | 357,993 | 0.99 | 3 | -0.2222 % | 2,607.4 |
| FixedReset Bank Non | 1.95 % | 2.37 % | 122,227 | 1.51 | 2 | -0.0606 % | 2,827.8 |
| FixedReset Ins Non | 5.88 % | 4.59 % | 103,562 | 15.83 | 22 | -0.7946 % | 2,025.9 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| MFC.PR.Q | FixedReset Ins Non | -12.08 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-17 Maturity Price : 15.86 Evaluated at bid price : 15.86 Bid-YTW : 5.10 % |
| MFC.PR.I | FixedReset Ins Non | -9.79 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-17 Maturity Price : 17.05 Evaluated at bid price : 17.05 Bid-YTW : 4.97 % |
| BAM.PF.F | FixedReset Disc | -6.77 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-17 Maturity Price : 15.02 Evaluated at bid price : 15.02 Bid-YTW : 5.74 % |
| TRP.PR.E | FixedReset Disc | -5.95 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-17 Maturity Price : 12.95 Evaluated at bid price : 12.95 Bid-YTW : 5.75 % |
| BAM.PF.B | FixedReset Disc | -4.73 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-17 Maturity Price : 14.70 Evaluated at bid price : 14.70 Bid-YTW : 5.71 % |
| MFC.PR.F | FixedReset Ins Non | -3.68 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-17 Maturity Price : 9.95 Evaluated at bid price : 9.95 Bid-YTW : 4.52 % |
| MFC.PR.R | FixedReset Ins Non | -3.66 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-17 Maturity Price : 22.53 Evaluated at bid price : 22.90 Bid-YTW : 4.65 % |
| BMO.PR.F | FixedReset Disc | -3.65 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-17 Maturity Price : 22.63 Evaluated at bid price : 23.50 Bid-YTW : 4.38 % |
| MFC.PR.H | FixedReset Ins Non | -3.19 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-17 Maturity Price : 19.12 Evaluated at bid price : 19.12 Bid-YTW : 4.70 % |
| BAM.PF.E | FixedReset Disc | -2.69 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-17 Maturity Price : 14.47 Evaluated at bid price : 14.47 Bid-YTW : 5.39 % |
| CU.PR.I | FixedReset Disc | -2.52 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-17 Maturity Price : 23.51 Evaluated at bid price : 24.34 Bid-YTW : 4.63 % |
| PWF.PR.T | FixedReset Disc | -2.48 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-17 Maturity Price : 15.76 Evaluated at bid price : 15.76 Bid-YTW : 4.78 % |
| SLF.PR.H | FixedReset Ins Non | -2.34 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-17 Maturity Price : 14.16 Evaluated at bid price : 14.16 Bid-YTW : 4.52 % |
| NA.PR.G | FixedReset Disc | -2.33 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-17 Maturity Price : 18.83 Evaluated at bid price : 18.83 Bid-YTW : 4.57 % |
| MFC.PR.L | FixedReset Ins Non | -2.26 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-17 Maturity Price : 15.11 Evaluated at bid price : 15.11 Bid-YTW : 4.65 % |
| NA.PR.S | FixedReset Disc | -1.73 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-17 Maturity Price : 16.51 Evaluated at bid price : 16.51 Bid-YTW : 4.55 % |
| RY.PR.H | FixedReset Disc | -1.63 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-17 Maturity Price : 16.90 Evaluated at bid price : 16.90 Bid-YTW : 4.26 % |
| RY.PR.P | Perpetual-Premium | -1.60 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2025-02-24 Maturity Price : 25.00 Evaluated at bid price : 25.26 Bid-YTW : 5.21 % |
| RY.PR.M | FixedReset Disc | -1.59 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-17 Maturity Price : 17.96 Evaluated at bid price : 17.96 Bid-YTW : 4.21 % |
| MFC.PR.G | FixedReset Ins Non | -1.58 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-17 Maturity Price : 18.05 Evaluated at bid price : 18.05 Bid-YTW : 4.62 % |
| BAM.PF.G | FixedReset Disc | -1.58 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-17 Maturity Price : 14.95 Evaluated at bid price : 14.95 Bid-YTW : 5.42 % |
| IFC.PR.C | FixedReset Ins Non | -1.53 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-17 Maturity Price : 16.05 Evaluated at bid price : 16.05 Bid-YTW : 4.76 % |
| BNS.PR.I | FixedReset Disc | -1.52 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-17 Maturity Price : 18.76 Evaluated at bid price : 18.76 Bid-YTW : 4.22 % |
| TD.PF.B | FixedReset Disc | -1.49 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-17 Maturity Price : 16.55 Evaluated at bid price : 16.55 Bid-YTW : 4.30 % |
| GWO.PR.N | FixedReset Ins Non | -1.44 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-17 Maturity Price : 9.56 Evaluated at bid price : 9.56 Bid-YTW : 4.39 % |
| W.PR.M | FixedReset Disc | -1.40 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-17 Maturity Price : 24.21 Evaluated at bid price : 24.59 Bid-YTW : 5.30 % |
| IAF.PR.I | FixedReset Ins Non | -1.34 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-17 Maturity Price : 19.16 Evaluated at bid price : 19.16 Bid-YTW : 4.43 % |
| CU.PR.D | Perpetual-Discount | -1.32 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-17 Maturity Price : 22.79 Evaluated at bid price : 23.13 Bid-YTW : 5.36 % |
| CU.PR.G | Perpetual-Discount | -1.32 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-17 Maturity Price : 21.65 Evaluated at bid price : 21.65 Bid-YTW : 5.27 % |
| BAM.PF.I | FixedReset Disc | -1.29 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-17 Maturity Price : 23.38 Evaluated at bid price : 23.76 Bid-YTW : 5.07 % |
| TD.PF.I | FixedReset Disc | -1.28 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-17 Maturity Price : 20.84 Evaluated at bid price : 20.84 Bid-YTW : 4.20 % |
| TRP.PR.J | FixedReset Disc | -1.22 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-17 Maturity Price : 24.06 Evaluated at bid price : 25.18 Bid-YTW : 5.49 % |
| IFC.PR.E | Deemed-Retractible | -1.21 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-17 Maturity Price : 23.29 Evaluated at bid price : 23.67 Bid-YTW : 5.53 % |
| BAM.PR.T | FixedReset Disc | -1.13 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-17 Maturity Price : 13.08 Evaluated at bid price : 13.08 Bid-YTW : 5.31 % |
| BMO.PR.W | FixedReset Disc | -1.12 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-17 Maturity Price : 16.75 Evaluated at bid price : 16.75 Bid-YTW : 4.34 % |
| IFC.PR.F | Deemed-Retractible | -1.07 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-17 Maturity Price : 23.54 Evaluated at bid price : 23.94 Bid-YTW : 5.57 % |
| CU.PR.F | Perpetual-Discount | -1.05 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-17 Maturity Price : 21.64 Evaluated at bid price : 21.64 Bid-YTW : 5.28 % |
| MFC.PR.N | FixedReset Ins Non | -1.04 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-17 Maturity Price : 16.17 Evaluated at bid price : 16.17 Bid-YTW : 4.54 % |
| BAM.PR.X | FixedReset Disc | -1.02 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-17 Maturity Price : 10.65 Evaluated at bid price : 10.65 Bid-YTW : 5.25 % |
| TD.PF.F | Perpetual-Discount | -1.02 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-17 Maturity Price : 24.02 Evaluated at bid price : 24.30 Bid-YTW : 5.04 % |
| SLF.PR.J | FloatingReset | 1.05 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-17 Maturity Price : 9.60 Evaluated at bid price : 9.60 Bid-YTW : 4.17 % |
| TRP.PR.A | FixedReset Disc | 1.15 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-17 Maturity Price : 12.35 Evaluated at bid price : 12.35 Bid-YTW : 5.29 % |
| IAF.PR.B | Deemed-Retractible | 1.34 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-17 Maturity Price : 21.64 Evaluated at bid price : 21.89 Bid-YTW : 5.29 % |
| BMO.PR.A | FloatingReset | 1.45 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.55 Bid-YTW : 2.50 % |
| TRP.PR.B | FixedReset Disc | 1.80 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-17 Maturity Price : 8.48 Evaluated at bid price : 8.48 Bid-YTW : 4.90 % |
| BMO.PR.Z | Perpetual-Discount | 1.90 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-17 Maturity Price : 24.91 Evaluated at bid price : 25.20 Bid-YTW : 5.02 % |
| CM.PR.T | FixedReset Disc | 2.02 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-17 Maturity Price : 22.21 Evaluated at bid price : 22.75 Bid-YTW : 4.33 % |
| BMO.PR.D | FixedReset Disc | 2.11 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-17 Maturity Price : 21.42 Evaluated at bid price : 21.75 Bid-YTW : 4.19 % |
| NA.PR.C | FixedReset Disc | 2.27 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-17 Maturity Price : 21.35 Evaluated at bid price : 21.66 Bid-YTW : 4.43 % |
| BAM.PR.R | FixedReset Disc | 2.65 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-17 Maturity Price : 11.61 Evaluated at bid price : 11.61 Bid-YTW : 5.81 % |
| MFC.PR.K | FixedReset Ins Non | 12.29 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-17 Maturity Price : 15.90 Evaluated at bid price : 15.90 Bid-YTW : 4.59 % |
| IAF.PR.G | FixedReset Ins Non | 12.89 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-17 Maturity Price : 17.78 Evaluated at bid price : 17.78 Bid-YTW : 4.62 % |
| SLF.PR.G | FixedReset Ins Non | 13.37 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-17 Maturity Price : 10.60 Evaluated at bid price : 10.60 Bid-YTW : 4.22 % |
| PWF.PR.P | FixedReset Disc | 18.65 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-17 Maturity Price : 10.56 Evaluated at bid price : 10.56 Bid-YTW : 4.65 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| CM.PR.R | FixedReset Disc | 333,351 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-17 Maturity Price : 21.48 Evaluated at bid price : 21.48 Bid-YTW : 4.45 % |
| BMO.PR.Z | Perpetual-Discount | 141,608 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-17 Maturity Price : 24.91 Evaluated at bid price : 25.20 Bid-YTW : 5.02 % |
| TRP.PR.A | FixedReset Disc | 120,589 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-17 Maturity Price : 12.35 Evaluated at bid price : 12.35 Bid-YTW : 5.29 % |
| RY.PR.M | FixedReset Disc | 72,068 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-17 Maturity Price : 17.96 Evaluated at bid price : 17.96 Bid-YTW : 4.21 % |
| TD.PF.I | FixedReset Disc | 59,193 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-17 Maturity Price : 20.84 Evaluated at bid price : 20.84 Bid-YTW : 4.20 % |
| CU.PR.C | FixedReset Disc | 52,958 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-17 Maturity Price : 15.93 Evaluated at bid price : 15.93 Bid-YTW : 4.48 % |
| There were 53 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| BAM.PR.X | FixedReset Disc | Quote: 10.65 – 17.27 Spot Rate : 6.6200 Average : 3.5784 YTW SCENARIO |
| MFC.PR.Q | FixedReset Ins Non | Quote: 15.86 – 18.00 Spot Rate : 2.1400 Average : 1.3939 YTW SCENARIO |
| BAM.PF.F | FixedReset Disc | Quote: 15.02 – 16.68 Spot Rate : 1.6600 Average : 1.0176 YTW SCENARIO |
| BAM.PF.I | FixedReset Disc | Quote: 23.76 – 24.74 Spot Rate : 0.9800 Average : 0.5349 YTW SCENARIO |
| MFC.PR.I | FixedReset Ins Non | Quote: 17.05 – 18.60 Spot Rate : 1.5500 Average : 1.1897 YTW SCENARIO |
| BMO.PR.F | FixedReset Disc | Quote: 23.50 – 24.30 Spot Rate : 0.8000 Average : 0.4625 YTW SCENARIO |
The LRCN market might be a big deal. Spreads in the pref market are higher than usual and the LRCN will be attractive to foreign institutional holders due to the withholding tax differences from prefs. It will be fun to see how this plays out.