The big news today was the FOMC announcement:
The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent. With inflation having exceeded 2 percent for some time, the Committee expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the Committee’s assessments of maximum employment. In light of inflation developments and the further improvement in the labor market, the Committee decided to reduce the monthly pace of its net asset purchases by $20 billion for Treasury securities and $10 billion for agency mortgage-backed securities. Beginning in January, the Committee will increase its holdings of Treasury securities by at least $40 billion per month and of agency mortgage‑backed securities by at least $20 billion per month. The Committee judges that similar reductions in the pace of net asset purchases will likely be appropriate each month, but it is prepared to adjust the pace of purchases if warranted by changes in the economic outlook. The Federal Reserve’s ongoing purchases and holdings of securities will continue to foster smooth market functioning and accommodative financial conditions, thereby supporting the flow of credit to households and businesses.
In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals. The Committee’s assessments will take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments.
Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Thomas I. Barkin; Raphael W. Bostic; Michelle W. Bowman; Lael Brainard; Richard H. Clarida; Mary C. Daly; Charles L. Evans; Randal K. Quarles; and Christopher J. Waller.
Jeanna Smialek reports in the NYT:
The central bank’s policy statement set up a more rapid end to the monthly bond-buying program that the Fed has been using throughout the pandemic to keep money chugging through markets and to bolster growth. A fresh set of economic projections released on Wednesday showed that officials expect to raise interest rates, which are now set near-zero, three times next year.
“Economic developments and changes in the outlook warrant this evolution,” Jerome H. Powell, the Fed chair, said of the decision to pull back on bond purchases more quickly.
By tapering off its bond buying faster, the Fed is doing less to stimulate the economy with each passing month, and putting the program on track to end completely in March.
Equity markets loved it:
Wall Street ended sharply higher on Wednesday after the Federal Reserve said it would end its pandemic-era bond purchases in March as it exits from policies enacted at the start of the health crisis. The TSX also rose, but gains were less impressive as many resource stocks lost ground.
Following its two-day policy meeting, the Fed signaled its inflation target has been met, and its announcement on ending the bond purchases paved the way for three quarter-percentage-point interest rate increases by the end of 2022.
All three main U.S. stock indexes reversed earlier losses and climbed into positive territory. Wall Street extended those gains as Fed Chair Jerome Powell during his news conference struck an upbeat tone about the U.S. economic recovery and expressed willingness to raise interest rates as necessary to control inflation.
“What the markets are saying is, because the Fed is increasing their taper, maybe they feel inflation is under control,” said Tom Martin, senior portfolio manager at Globalt Investments in Atlanta. “They did what was expected. It’s going to add to the credibility for the Fed and that will be – on balance – neutral to positive for the markets.”
PerpetualDiscounts now yield 4.81%, equivalent to 6.25% interest at the standard equivalency factor of 1.3x. Long corporates now yield 3.50%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has declined slightly (and perhaps spuriously) to 275bp from the 280bp reported December 8.
| 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 | 3.14 % | 3.69 % | 42,994 | 19.85 | 1 | 1.5625 % | 2,777.9 |
| FixedFloater | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.9566 % | 5,002.0 |
| Floater | 3.19 % | 3.16 % | 70,126 | 19.34 | 3 | -0.9566 % | 2,882.7 |
| OpRet | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.1305 % | 3,649.4 |
| SplitShare | 4.71 % | 4.35 % | 43,320 | 3.60 | 6 | -0.1305 % | 4,358.2 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.1305 % | 3,400.4 |
| Perpetual-Premium | 5.18 % | -5.60 % | 44,449 | 0.09 | 23 | 0.1158 % | 3,245.4 |
| Perpetual-Discount | 4.79 % | 4.81 % | 60,008 | 15.81 | 11 | 0.2606 % | 3,836.8 |
| FixedReset Disc | 4.03 % | 4.06 % | 111,780 | 16.99 | 42 | -0.1013 % | 2,793.5 |
| Insurance Straight | 4.98 % | 4.51 % | 99,024 | 4.23 | 19 | -0.0274 % | 3,640.9 |
| FloatingReset | 2.52 % | 2.83 % | 30,375 | 20.17 | 2 | -0.1201 % | 2,699.6 |
| FixedReset Prem | 4.75 % | 3.76 % | 116,496 | 2.29 | 28 | -0.0759 % | 2,705.9 |
| FixedReset Bank Non | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.1013 % | 2,855.5 |
| FixedReset Ins Non | 4.13 % | 3.88 % | 83,961 | 17.29 | 19 | 0.0872 % | 2,916.9 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| BAM.PF.E | FixedReset Disc | -5.57 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2051-12-15 Maturity Price : 20.00 Evaluated at bid price : 20.00 Bid-YTW : 4.80 % |
| BAM.PF.B | FixedReset Disc | -5.56 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2051-12-15 Maturity Price : 21.25 Evaluated at bid price : 21.25 Bid-YTW : 4.74 % |
| BAM.PR.T | FixedReset Disc | -4.69 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2051-12-15 Maturity Price : 19.30 Evaluated at bid price : 19.30 Bid-YTW : 4.73 % |
| BAM.PR.K | Floater | -2.42 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2051-12-15 Maturity Price : 13.29 Evaluated at bid price : 13.29 Bid-YTW : 3.22 % |
| TRP.PR.D | FixedReset Disc | -1.76 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2051-12-15 Maturity Price : 20.63 Evaluated at bid price : 20.63 Bid-YTW : 4.59 % |
| BAM.PF.H | FixedReset Prem | -1.13 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2025-12-31 Maturity Price : 25.00 Evaluated at bid price : 26.15 Bid-YTW : 3.73 % |
| CM.PR.Y | FixedReset Prem | -1.07 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2024-07-31 Maturity Price : 25.00 Evaluated at bid price : 25.86 Bid-YTW : 4.06 % |
| TRP.PR.C | FixedReset Disc | -1.00 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2051-12-15 Maturity Price : 14.80 Evaluated at bid price : 14.80 Bid-YTW : 4.56 % |
| TD.PF.J | FixedReset Prem | 1.21 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2051-12-15 Maturity Price : 23.83 Evaluated at bid price : 25.15 Bid-YTW : 4.01 % |
| FTS.PR.K | FixedReset Disc | 1.22 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2051-12-15 Maturity Price : 20.80 Evaluated at bid price : 20.80 Bid-YTW : 4.17 % |
| BAM.PR.E | Ratchet | 1.56 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2051-12-15 Maturity Price : 25.00 Evaluated at bid price : 19.50 Bid-YTW : 3.69 % |
| CU.PR.C | FixedReset Disc | 1.62 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2051-12-15 Maturity Price : 21.59 Evaluated at bid price : 21.95 Bid-YTW : 4.25 % |
| BAM.PF.C | Perpetual-Premium | 1.79 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2022-03-31 Maturity Price : 25.00 Evaluated at bid price : 25.00 Bid-YTW : 4.14 % |
| CU.PR.G | Perpetual-Discount | 2.88 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2051-12-15 Maturity Price : 23.68 Evaluated at bid price : 23.95 Bid-YTW : 4.72 % |
| RY.PR.J | FixedReset Disc | 3.07 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2025-05-24 Maturity Price : 25.00 Evaluated at bid price : 24.53 Bid-YTW : 3.86 % |
| BAM.PR.X | FixedReset Disc | 4.17 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2051-12-15 Maturity Price : 17.00 Evaluated at bid price : 17.00 Bid-YTW : 4.61 % |
| BAM.PR.R | FixedReset Disc | 6.91 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2051-12-15 Maturity Price : 19.65 Evaluated at bid price : 19.65 Bid-YTW : 4.51 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| PWF.PR.P | FixedReset Disc | 43,250 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2051-12-15 Maturity Price : 16.75 Evaluated at bid price : 16.75 Bid-YTW : 4.12 % |
| CU.PR.J | Perpetual-Discount | 34,700 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2051-12-15 Maturity Price : 24.52 Evaluated at bid price : 24.91 Bid-YTW : 4.78 % |
| PWF.PF.A | Perpetual-Discount | 33,200 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2051-12-15 Maturity Price : 24.45 Evaluated at bid price : 24.85 Bid-YTW : 4.57 % |
| RY.PR.M | FixedReset Disc | 25,800 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2051-12-15 Maturity Price : 22.90 Evaluated at bid price : 24.09 Bid-YTW : 3.85 % |
| BMO.PR.D | FixedReset Prem | 23,300 | YTW SCENARIO Maturity Type : Call Maturity Date : 2022-08-25 Maturity Price : 25.00 Evaluated at bid price : 25.18 Bid-YTW : 3.74 % |
| NA.PR.W | FixedReset Disc | 19,800 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2051-12-15 Maturity Price : 22.92 Evaluated at bid price : 23.93 Bid-YTW : 3.74 % |
| There were 9 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| BAM.PF.B | FixedReset Disc | Quote: 21.25 – 23.45 Spot Rate : 2.2000 Average : 1.4831 YTW SCENARIO |
| BAM.PF.E | FixedReset Disc | Quote: 20.00 – 21.49 Spot Rate : 1.4900 Average : 1.0115 YTW SCENARIO |
| TRP.PR.E | FixedReset Disc | Quote: 20.20 – 22.00 Spot Rate : 1.8000 Average : 1.3623 YTW SCENARIO |
| BAM.PR.T | FixedReset Disc | Quote: 19.30 – 20.75 Spot Rate : 1.4500 Average : 1.0571 YTW SCENARIO |
| TRP.PR.A | FixedReset Disc | Quote: 18.08 – 19.00 Spot Rate : 0.9200 Average : 0.5831 YTW SCENARIO |
| BAM.PR.K | Floater | Quote: 13.29 – 14.30 Spot Rate : 1.0100 Average : 0.7544 YTW SCENARIO |