There were no real surprises in the FOMC statement:
The Federal Reserve is committed to using its full range of tools to support the U.S. economy in this challenging time, thereby promoting its maximum employment and price stability goals.
The coronavirus outbreak is causing tremendous human and economic hardship across the United States and around the world. Following sharp declines, economic activity and employment have picked up somewhat in recent months but remain well below their levels at the beginning of the year. Weaker demand and significantly lower oil prices are holding down consumer price inflation. Overall financial conditions have improved in recent months, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses.
The path of the economy will depend significantly on the course of the virus. The ongoing public health crisis will weigh heavily on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term. In light of these developments, the Committee decided to maintain the target range for the federal funds rate at 0 to 1/4 percent. The Committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.
The Committee will continue to monitor the implications of incoming information for the economic outlook, including information related to public health, as well as global developments and muted inflation pressures, and will use its tools and act as appropriate to support the economy. In determining the timing and size of future adjustments to the stance of monetary policy, 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.
To support the flow of credit to households and businesses, over coming months the Federal Reserve will increase its holdings of Treasury securities and agency residential and commercial mortgage-backed securities at least at the current pace to sustain smooth market functioning, thereby fostering effective transmission of monetary policy to broader financial conditions. In addition, the Open Market Desk will continue to offer large-scale overnight and term repurchase agreement operations. The Committee will closely monitor developments and is prepared to adjust its plans as appropriate.
Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michelle W. Bowman; Lael Brainard; Richard H. Clarida; Patrick Harker; Robert S. Kaplan; Neel Kashkari; Loretta J. Mester; and Randal K. Quarles.
Powell’s a bit nervous:
“The path forward for the economy is extraordinarily uncertain and will depend in large part on our success in keeping the virus in check,” Mr. Powell said at a news conference following the Fed’s two-day meeting, noting that infections have surged since late June and the “pace of recovery looks like it has slowed.”
Mr. Powell said policymakers needed more data before drawing firm conclusions about the scope of the pullback, but he noted that debit and credit card spending were slowing and labor market indicators suggested that recent job gains might be weakening. More than 14 million people who held jobs in February are no longer employed, Mr. Powell said, warning that it will take a while for workers in certain industries, like restaurants, hotels and travel, to find new jobs.
“There’s probably going to be a long tail where a large number of people are struggling to get back to work,” he said, adding that the Fed was “not even thinking about thinking about thinking about” raising rates.
…
While the Fed took no major actions on Wednesday, Mr. Powell’s comments underlined both the peril ahead for American workers and the reality that interest rates are likely to be very low — making money cheap to borrow — for an extended period of time. Stock prices climbed following his remarks as investors took heart in the Fed’s patient stance.
Meanwhile US stimulus talks are going nowhere:
The prospects for a quick agreement between the Trump administration and congressional Democrats on a new round of aid for the ailing economy faded on Wednesday, as President Trump undercut his own party’s efforts to negotiate a deal and a top White House official declared that a lifeline to unemployed workers would run out as scheduled at week’s end.
With negotiations barely started to find a middle ground between Republicans’ $1 trillion plan and Democrats’ $3 trillion package, Mr. Trump poured cold water on the entire enterprise, saying that he would prefer a bare-bones package that would send “payments to the people” and protect them from being evicted.
“The rest of it, we’re so far apart, we don’t care,” Mr. Trump said before leaving the White House for an event in Texas. “We really don’t care.”
…
The breakdown reflects a predicament for Republicans that has placed Mr. Trump in a difficult negotiating position. After the enactment of nearly $3 trillion in pandemic-related stimulus in the spring, many Senate Republicans are opposed to additional deficit spending to fuel the economy, meaning that any agreement would need to attract significant support from Democrats to clear Congress.
As previously noted, monetary and fiscal policy should work in tandem, but loose monetary policy helps the rich get richer, while loose fiscal policy makes them poorer. So guess what policy mix is favoured by those who run the country!
PerpetualDiscounts now yield 5.65%, equivalent to 7.34% interest at the standard equivalency factor of 1.3x. Long corporates now yield 2.85%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has widened slightly (and perhaps spuriously) to 450bp from the 445bp reported July 22. We are now slightly above the pre-2020 record of 445bp briefly touched in 2008.
| 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 | -2.5731 % | 1,622.5 |
| FixedFloater | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -2.5731 % | 2,977.2 |
| Floater | 5.15 % | 5.13 % | 61,069 | 15.27 | 3 | -2.5731 % | 1,715.7 |
| OpRet | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.1362 % | 3,477.5 |
| SplitShare | 4.83 % | 4.86 % | 56,186 | 3.74 | 7 | -0.1362 % | 4,152.8 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.1362 % | 3,240.2 |
| Perpetual-Premium | 5.18 % | 4.87 % | 75,705 | 4.07 | 1 | -0.1183 % | 3,078.3 |
| Perpetual-Discount | 5.53 % | 5.65 % | 79,716 | 14.36 | 35 | 0.0564 % | 3,303.8 |
| FixedReset Disc | 5.67 % | 4.41 % | 148,555 | 15.88 | 75 | 0.3023 % | 1,996.3 |
| Deemed-Retractible | 5.27 % | 5.39 % | 95,255 | 14.48 | 27 | -0.0414 % | 3,255.4 |
| FloatingReset | 2.37 % | 2.54 % | 35,968 | 1.48 | 4 | 0.6742 % | 1,763.3 |
| FixedReset Prem | 5.41 % | 3.63 % | 349,531 | 0.96 | 3 | 0.5012 % | 2,614.4 |
| FixedReset Bank Non | 1.95 % | 2.05 % | 102,364 | 1.48 | 2 | 0.1209 % | 2,840.4 |
| FixedReset Ins Non | 5.89 % | 4.63 % | 96,998 | 15.53 | 22 | -0.5395 % | 2,021.2 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| RY.PR.M | FixedReset Disc | -16.33 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-29 Maturity Price : 15.32 Evaluated at bid price : 15.32 Bid-YTW : 4.84 % |
| MFC.PR.I | FixedReset Ins Non | -15.29 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-29 Maturity Price : 15.40 Evaluated at bid price : 15.40 Bid-YTW : 5.51 % |
| BAM.PR.K | Floater | -5.31 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-29 Maturity Price : 8.03 Evaluated at bid price : 8.03 Bid-YTW : 5.40 % |
| PWF.PR.Z | Perpetual-Discount | -3.51 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-29 Maturity Price : 21.70 Evaluated at bid price : 22.00 Bid-YTW : 5.87 % |
| W.PR.M | FixedReset Disc | -2.63 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-29 Maturity Price : 23.63 Evaluated at bid price : 24.10 Bid-YTW : 5.42 % |
| SLF.PR.H | FixedReset Ins Non | -2.47 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-29 Maturity Price : 13.80 Evaluated at bid price : 13.80 Bid-YTW : 4.63 % |
| MFC.PR.C | Deemed-Retractible | -2.08 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-29 Maturity Price : 21.15 Evaluated at bid price : 21.15 Bid-YTW : 5.39 % |
| BAM.PR.B | Floater | -1.50 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-29 Maturity Price : 8.51 Evaluated at bid price : 8.51 Bid-YTW : 5.09 % |
| BIP.PR.C | FixedReset Disc | -1.28 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-29 Maturity Price : 22.71 Evaluated at bid price : 23.20 Bid-YTW : 5.81 % |
| PVS.PR.G | SplitShare | -1.15 % | YTW SCENARIO Maturity Type : Option Certainty Maturity Date : 2026-02-28 Maturity Price : 25.00 Evaluated at bid price : 24.91 Bid-YTW : 5.15 % |
| W.PR.K | FixedReset Disc | -1.08 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-29 Maturity Price : 23.95 Evaluated at bid price : 24.63 Bid-YTW : 5.34 % |
| TD.PF.C | FixedReset Disc | -1.05 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-29 Maturity Price : 17.02 Evaluated at bid price : 17.02 Bid-YTW : 4.26 % |
| TD.PF.H | FixedReset Disc | 1.00 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2021-10-31 Maturity Price : 25.00 Evaluated at bid price : 25.15 Bid-YTW : 4.35 % |
| CU.PR.I | FixedReset Disc | 1.02 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-29 Maturity Price : 24.01 Evaluated at bid price : 24.75 Bid-YTW : 4.57 % |
| BAM.PF.H | FixedReset Disc | 1.04 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-29 Maturity Price : 23.51 Evaluated at bid price : 24.30 Bid-YTW : 5.16 % |
| CM.PR.Y | FixedReset Disc | 1.04 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-29 Maturity Price : 22.96 Evaluated at bid price : 24.25 Bid-YTW : 4.28 % |
| CU.PR.E | Perpetual-Discount | 1.07 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-29 Maturity Price : 23.30 Evaluated at bid price : 23.60 Bid-YTW : 5.26 % |
| TRP.PR.C | FixedReset Disc | 1.07 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-29 Maturity Price : 8.48 Evaluated at bid price : 8.48 Bid-YTW : 5.60 % |
| ELF.PR.H | Perpetual-Discount | 1.08 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-29 Maturity Price : 24.07 Evaluated at bid price : 24.36 Bid-YTW : 5.68 % |
| CM.PR.S | FixedReset Disc | 1.09 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-29 Maturity Price : 17.65 Evaluated at bid price : 17.65 Bid-YTW : 4.32 % |
| BMO.PR.C | FixedReset Disc | 1.11 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-29 Maturity Price : 22.50 Evaluated at bid price : 22.85 Bid-YTW : 4.14 % |
| SLF.PR.I | FixedReset Ins Non | 1.18 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-29 Maturity Price : 17.20 Evaluated at bid price : 17.20 Bid-YTW : 4.61 % |
| BNS.PR.H | FixedReset Disc | 1.20 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2022-01-26 Maturity Price : 25.00 Evaluated at bid price : 25.30 Bid-YTW : 4.05 % |
| BAM.PF.J | FixedReset Disc | 1.23 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-29 Maturity Price : 22.53 Evaluated at bid price : 23.03 Bid-YTW : 5.19 % |
| BIK.PR.A | FixedReset Disc | 1.23 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-29 Maturity Price : 23.14 Evaluated at bid price : 24.60 Bid-YTW : 5.95 % |
| CM.PR.O | FixedReset Disc | 1.31 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-29 Maturity Price : 16.25 Evaluated at bid price : 16.25 Bid-YTW : 4.48 % |
| BMO.PR.F | FixedReset Disc | 1.46 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-29 Maturity Price : 23.00 Evaluated at bid price : 24.30 Bid-YTW : 4.20 % |
| PVS.PR.H | SplitShare | 1.48 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2027-02-28 Maturity Price : 25.00 Evaluated at bid price : 24.72 Bid-YTW : 5.05 % |
| TRP.PR.D | FixedReset Disc | 1.87 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-29 Maturity Price : 13.65 Evaluated at bid price : 13.65 Bid-YTW : 5.49 % |
| MFC.PR.N | FixedReset Ins Non | 2.06 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-29 Maturity Price : 15.82 Evaluated at bid price : 15.82 Bid-YTW : 4.64 % |
| BAM.PF.B | FixedReset Disc | 2.13 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-29 Maturity Price : 15.34 Evaluated at bid price : 15.34 Bid-YTW : 5.45 % |
| TRP.PR.E | FixedReset Disc | 2.36 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-29 Maturity Price : 13.45 Evaluated at bid price : 13.45 Bid-YTW : 5.53 % |
| BAM.PF.I | FixedReset Disc | 2.41 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-29 Maturity Price : 23.00 Evaluated at bid price : 23.40 Bid-YTW : 5.16 % |
| PWF.PR.T | FixedReset Disc | 2.85 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-29 Maturity Price : 16.25 Evaluated at bid price : 16.25 Bid-YTW : 4.63 % |
| TRP.PR.A | FixedReset Disc | 2.99 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-29 Maturity Price : 12.05 Evaluated at bid price : 12.05 Bid-YTW : 5.43 % |
| TD.PF.J | FixedReset Disc | 4.46 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-29 Maturity Price : 19.90 Evaluated at bid price : 19.90 Bid-YTW : 4.13 % |
| TRP.PR.F | FloatingReset | 5.10 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-29 Maturity Price : 10.10 Evaluated at bid price : 10.10 Bid-YTW : 5.23 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| RY.PR.W | Perpetual-Discount | 111,000 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-29 Maturity Price : 24.64 Evaluated at bid price : 24.90 Bid-YTW : 4.91 % |
| TD.PF.M | FixedReset Disc | 73,614 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-29 Maturity Price : 22.94 Evaluated at bid price : 24.20 Bid-YTW : 4.22 % |
| CM.PR.R | FixedReset Disc | 69,785 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-29 Maturity Price : 21.27 Evaluated at bid price : 21.55 Bid-YTW : 4.41 % |
| BNS.PR.H | FixedReset Disc | 66,929 | YTW SCENARIO Maturity Type : Call Maturity Date : 2022-01-26 Maturity Price : 25.00 Evaluated at bid price : 25.30 Bid-YTW : 4.05 % |
| GWO.PR.H | Deemed-Retractible | 61,100 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-29 Maturity Price : 21.65 Evaluated at bid price : 21.90 Bid-YTW : 5.59 % |
| TRP.PR.D | FixedReset Disc | 58,200 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-07-29 Maturity Price : 13.65 Evaluated at bid price : 13.65 Bid-YTW : 5.49 % |
| There were 42 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| RY.PR.M | FixedReset Disc | Quote: 15.32 – 18.50 Spot Rate : 3.1800 Average : 1.8523 YTW SCENARIO |
| MFC.PR.I | FixedReset Ins Non | Quote: 15.40 – 18.44 Spot Rate : 3.0400 Average : 1.9364 YTW SCENARIO |
| IFC.PR.E | Deemed-Retractible | Quote: 23.99 – 25.00 Spot Rate : 1.0100 Average : 0.6106 YTW SCENARIO |
| PWF.PR.Z | Perpetual-Discount | Quote: 22.00 – 23.00 Spot Rate : 1.0000 Average : 0.6197 YTW SCENARIO |
| BAM.PF.J | FixedReset Disc | Quote: 23.03 – 24.00 Spot Rate : 0.9700 Average : 0.6463 YTW SCENARIO |
| TD.PF.C | FixedReset Disc | Quote: 17.02 – 18.89 Spot Rate : 1.8700 Average : 1.5618 YTW SCENARIO |