Econbrowser‘s James Hamilton reviews 5-Year TIPS, which have been showing some rather unusual behaviour recently:
on Monday, the TIPS yield fell 214 basis points, while the nominal yield was down only 22 basis points, leaving the TIPS yield only slightly above the nominal.
Dr. Hamilton quotes extensively from Greg Mankiw who points out:
Starting 12/01/2008, the TIPS yield curve will use on-the-run TIPS as knot points rather than all securities under 20 years
There are two kinds of TIPS – on-the-run (recent issue) and off-the-run (old issue). The older issues will have a lot of prior inflation embedded in their price; the new issues will have none. Since the minimum redemption value of a TIPS is par, this means that a deflationary environment will erode the principal of off-the-run TIPS while leaving the on-the-run issues unscathed; hence, there is now not simply a liquidity premium contributing to the difference in yields, but an embedded put as well.
Assiduous Readers will remember that continued five-year TIPS issuance is dubious. They will also be aware that the Cleveland Fed has given up trying to figure out what TIPS yields really mean!
Entirely reasonable performance today on continued high volume. Of particular interest is the spike in volume and prices of splitShare corporations.
| Note that these indices are experimental; the absolute and relative daily values are expected to change in the final version. In this version, index values are based at 1,000.0 on 2006-6-30. The Fixed-Reset index was added effective 2008-9-5 at that day’s closing value of 1,119.4 for the Fixed-Floater index. |
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| Index | Mean Current Yield (at bid) | Mean YTW | Mean Average Trading Value | Mean Mod Dur (YTW) | Issues | Day’s Perf. | Index Value |
| Ratchet | N/A | N/A | N/A | N/A | 0 | N/A | N/A |
| Fixed-Floater | 7.02% | 7.36% | 78,664 | 13.26 | 6 | -1.7358% | 751.0 |
| Floater | 9.71% | 10.00% | 61,180 | 9.31 | 2 | +2.1503% | 364.7 |
| Op. Retract | 5.53% | 7.01% | 142,588 | 4.18 | 15 | -0.0515% | 977.0 |
| Split-Share | 7.31% | 14.49% | 66,886 | 3.89 | 14 | +1.6050% | 838.4 |
| Interest Bearing | 9.46% | 20.51% | 58,779 | 2.89 | 3 | -0.9721% | 772.4 |
| Perpetual-Premium | N/A | N/A | N/A | N/A | N/A | N/A | N/A |
| Perpetual-Discount | 7.92% | 8.04% | 197,377 | 11.40 | 71 | +0.2976% | 697.9 |
| Fixed-Reset | 6.13% | 5.59% | 1,076,057 | 14.21 | 15 | +0.2764% | 974.7 |
| Major Price Changes | |||
| Issue | Index | Change | Notes |
| BNA.PR.B | SplitShare | -12.4375% | Now with a pre-tax bid-YTW of 15.20% based on a bid of 14.01 and a hardMaturity 2016-3-25 at 25.00. Closing quote of 14.01-15.49, 10×1. Day’s range of 14.00-76. |
| BCE.PR.G | FixFloat | -7.4279% | |
| RY.PR.F | PerpetualDiscount | -5.5556% | Now with a pre-tax bid-YTW of 7.35% based on a bid of 15.30 and a limitMaturity. Closing quote 15.45-57, 9×3. Day’s range of 15.00-16.50. |
| CM.PR.E | PerpetualDiscount | -3.1579% | Now with a pre-tax bid-YTW of 8.62% based on a bid of 16.56 and a limitMaturity. Closing quote 16.56-75, 5×10. Day’s range of 16.56-25. |
| NA.PR.L | PerpetualDiscount | -3.1455% | Now with a pre-tax bid-YTW of 8.32% based on a bid of 14.78 and a limitMaturity. Closing quote 14.78-27, 3×16. Day’s range of 14.49-15.55. |
| MFC.PR.C | PerpetualDiscount | -3.1271% | Now with a pre-tax bid-YTW of 7.77% based on a bid of 14.56 and a limitMaturity. Closing quote 14.55-68, 26×2. Day’s range of 14.51-30. |
| BCE.PR.A | FixFloat | -2.9412% | |
| CM.PR.G | PerpetualDiscount | -2.5563% | Now with a pre-tax bid-YTW of 8.60% based on a bid of 16.01 and a limitMaturity. Closing quote 16.01-27, 5×1. Day’s range of 15.52-16.62. |
| CM.PR.K | FixedReset | -2.4096% | |
| FTN.PR.A | SplitShare | -2.3585% | Asset coverage of 1.6-:1 as of November 28, according to the company. Now with a pre-tax bid-YTW of 14.07% based on a bid of 6.21 and a hardMaturity 2015-12-1 at 10.00. Closing quote of 6.21-40, 7×1. Day’s range of 6.13-51. |
| SBN.PR.A | SplitShare | -2.0732% | Asset coverage of 1.8+:1 as of November 30 according to Mulvihill. Now with a pre-tax bid-YTW of 9.78% based on a bid of 8.03 and a hardMaturity 2014-12-1 at 10.00. Closing quote of 8.03-45, 30×10. Day’s range of 7.91-15. |
| BAM.PR.N | PerpetualDiscount | -2.0730% | Now with a pre-tax bid-YTW of 12.42% based on a bid of 9.92 and a limitMaturity. Closing quote 9.92-10.09, 1×4. Day’s range of 9.90-16. |
| NA.PR.M | PerpetualDiscount | -2.0619% | Now with a pre-tax bid-YTW of 8.01% based on a bid of 19.00 and a limitMaturity. Closing quote 19.00-50, 15×2. Day’s range of 19.10-80. |
| BAM.PR.J | OpRet | -2.0270% | Now with a pre-tax bid-YTW of 13.82% based on a bid of 14.50 and a softMaturity 2018-3-30 at 25.00. Closing quote of 14.50-69, 8×1. Day’s range of 14.00-00. |
| BMO.PR.J | PerpetualDiscount | +2.0906% | Now with a pre-tax bid-YTW of 7.77% based on a bid of 14.65 and a limitMaturity. Closing quote 14.65-90, 20×12. Day’s range of 14.00-15.00. |
| BMO.PR.K | PerpetualDiscount | +2.0913% | Now with a pre-tax bid-YTW of 8.25% based on a bid of 16.11 and a limitMaturity. Closing quote 16.11-35, 10×1. Day’s range of 15.90-60. |
| LBS.PR.A | SplitShare | +2.1898% | Asset coverage of 1.4+:1 as of October 17, according to Brompton Group. Now with a pre-tax bid-YTW of 14.12% based on a bid of 7.00 and a hardMaturity 2013-11-29 at 10.00. Closing quote of 7.00-14, 30×1. Day’s range of 6.90-19. |
| TD.PR.S | FixedReset | +2.2005% | |
| ENB.PR.A | PerpetualDiscount | +2.3000% | Now with a pre-tax bid-YTW of 6.78% based on a bid of 20.46 and a limitMaturity. Closing quote 20.46-21.92 (!). Day’s range of 19.99-46. |
| ELF.PR.G | PerpetualDiscount | +2.3622% | Now with a pre-tax bid-YTW of 9.36% based on a bid of 13.00 and a limitMaturity. Closing quote 13.00-88, 11X2. Day’s range of 12.70-00. |
| TD.PR.Y | FixedReset | +2.4691% | |
| BNS.PR.O | PerpetualDiscount | +2.6761% | Now with a pre-tax bid-YTW of 7.58% based on a bid of 18.80 and a limitMaturity. Closing quote 18.80-03, 20×8. Day’s range of 18.50-00. |
| POW.PR.A | PerpetualDiscount | +2.6786% | Now with a pre-tax bid-YTW of 8.30% based on a bid of 17.25 and a limitMaturity. Closing quote 17.25-50, 2×24. Day’s range of 16.80-50. |
| FBS.PR.B | SplitShare | +2.7778% | Asset coverage of 1.1+:1 as of November 27 according to TD Securities. Now with a pre-tax bid-YTW of 15.93% based on a bid of 7.40 and a hardMaturity 2011-12-15 at 10.00. Closing quote of 7.40-48, 20×10. Day’s range of 7.30-49. |
| SLF.PR.C | PerpetualDiscount | +3.0133% | Now with a pre-tax bid-YTW of 7.59% based on a bid of 14.70 and a limitMaturity. Closing quote 14.70-71, 158×1. Day’s range of 14.00-15.01. |
| SLF.PR.B | PerpetualDiscount | +3.0239% | Now with a pre-tax bid-YTW of 8.22% based on a bid of 14.65 and a limitMaturity. Closing quote 14.65-70, 20×2. Day’s range of 14.25-70. |
| DF.PR.A | SplitShare | +3.2389% | Asset coverage of 1.4+:1 as of November 28 according to the company. Now with a pre-tax bid-YTW of 10.77% based on a bid of 7.65 and a hardMaturity 2014-12-1 at 10.00. Closing quote of 7.65-87, 100×1. Day’s range of 7.49-50. |
| LFE.PR.A | SplitShare | +3.5616% | Asset coverage of 1.6-:1 as of November 14 according to the company. Now with a pre-tax bid-YTW of 13.45% based on a bid of 7.56 and a hardMaturity 2012-12-1 at 10.00. Closing quote of 7.56-95, 50×14. Day’s range of 7.23-95. |
| MFC.PR.B | PerpetualDiscount | +3.6482% | Now with a pre-tax bid-YTW of 7.35% based on a bid of 15.91 and a limitMaturity. Closing quote 15.91-10, 3×20. Day’s range of 15.40-16.40. |
| BAM.PR.B | Floater | +3.7901% | |
| PWF.PR.E | PerpetualDiscount | +4.1905% | Now with a pre-tax bid-YTW of 8.54% based on a bid of 16.41 and a limitMaturity. Closing quote 16.41-51, 1×2. Day’s range of 15.90-80. |
| FFN.PR.A | SplitShare | +4.3165% | Asset coverage of 1.4+:1 as of November 14 according to the company. Now with a pre-tax bid-YTW of 16.78% based on a bid of 5.80 and a hardMaturity 2014-12-1 at 10.00. Closing quote of 5.80-6.83, 4×2. Day’s range of 5.60-00. |
| DFN.PR.A | SplitShare | +7.8329% | Asset coverage of 1.9-:1 as of November 14 according to the company. Now with a pre-tax bid-YTW of 9.16% based on a bid of 8.26 and a hardMaturity 2014-12-1 at 10.00. Closing quote of 8.26-49, 50×1. Day’s range of 7.79-39. |
| WFS.PR.A | SplitShare | +8.1989% | Asset coverage of 1.3-:1 as of November 30 according to Mulvihill. Now with a pre-tax bid-YTW of 15.25% based on a bid of 8.05 and a hardMaturity 2011-6-30 at 10.00. Closing quote of 8.05-15, 14×10. Day’s range of 7.09-8.15. |
| Volume Highlights | |||
| Issue | Index | Volume | Notes |
| TD.PR.O | PerpetualDiscount | 235,205 | TD crossed 200,000 at 16.40. Now with a pre-tax bid-YTW of 7.45% based on a bid of 16.55 and a limitMaturity. |
| BPO.PR.I | Scraps (Would be OpRet but there are credit concerns) | 202,555 | TD crossed 100,000 at 17.60, then another 100,000 at the same price. Now with a pre-tax bid-YTW of 27.11% based on a bid of 17.01 and OptionCertainty 2010-12-31 at 25.00. |
| WFS.PR.A | SplitShare | 238,665 | RBC crossed 191,000 at 8.15. Asset coverage of 1.3-:1 as of November 30 according to Mulvihill. Now with a pre-tax bid-YTW of 15.25% based on a bid of 8.05 and a hardMaturity 2011-6-30 at 10.00. Closing quote of 8.05-15, 14×10. Day’s range of 7.09-8.15. |
| BMO.PR.K | PerpetualDiscount | 79,315 | Desjardins crossed 27,200 at 16.60. Now with a pre-tax bid-YTW of 8.25% based on a bid of 16.11 and a limitMaturity. |
| SLF.PR.A | PerpetualDiscount | 71,220 | National Bank crossed 40,000 at 14.09. Now with a pre-tax bid-YTW of 8.39% based on a bid of 14.20 and a limitMaturity. |
| BMO.PR.J | PerpetualDiscount | 69,000 | Now with a pre-tax bid-YTW of 7.77% based on a bid of 14.65 and a limitMaturity. |
There were sixty-seven index-included $25-pv-equivalent issues trading over 10,000 shares today
Hi James,
I’m assiduous enough to note that the second line in the major price changes section (BAM.PR.H) has been copied verbatim from yesterday’s table, including the ending exclamation mark.
I should confess that I collect all your BAM / BNA daily comments and numbers in a spreadsheet (since September), so that’s how I noticed it.
Looking back 3 months, it makes an amazing read (I can email the spreadsheet to you if you’d like).
Adrian
I note that the asset coverage for LBS.PR.A has recovered slightly to 1.4 but several of the other split shares are hovering in the 1.3 range. At this point it’s not too much of a stretch to see them “breaking the buck” on the prefs. It occurs to me that management is not likely to sit quietly for several years then pay out zip to equity holders and (say) 80% to pref holders. It seems more likely that they would thrash around and propose some kind of reorganization like the XCM one described above.
It also occurs to me that even absent the actions of management, if the asset coverage dips below 1 the pref holders are faced with a likelihood of partial repayment which may well depress the market price of the prefs.
I’m assiduous enough to note that the second line in the major price changes section (BAM.PR.H) has been copied verbatim from yesterday’s table, including the ending exclamation mark.
Oops! That line should have been deleted … but it has been now.
I’ll pass on your offer of all my prior BAM / BNA comments … I’m depressed enough already! It’s good to know that there’s somebody out there keeping me honest, anyway!
several of the other split shares are hovering in the 1.3 range. At this point it’s not too much of a stretch to see them “breaking the buck” on the prefs.
Some of them have .. BSD.PR.A, for instance and quite a few others I’m not so familiar with. See the most recent DBRS Mass Review of Splits.
It occurs to me that management is not likely to sit quietly for several years then pay out zip to equity holders and (say) 80% to pref holders. It seems more likely that they would thrash around and propose some kind of reorganization like the XCM one described above.
Maybe. The big thing with the XCM & XMF reorganizations was that their Portfolio Insurance Strategy left them entirely in cash/fixed income, without any possibility of gains going forward. I remember GT.PR.A coasted along with a sub-par NAV for years before finally reaching its wind-up date.
It also occurs to me that even absent the actions of management, if the asset coverage dips below 1 the pref holders are faced with a likelihood of partial repayment which may well depress the market price of the prefs.
Yes indeed! At that point the preferred shareholders are invested in a closed end fund – so there’s a discount for that – with the upside limited by the existence of capital shares – so there’s another discount for that.