TXPR closed at 650.53, up 0.96% on the day. Volume today was 3.07-million, second only to March 31 in the past 21 trading days, which shows just how anemic trade has been lately.
CPD closed at 12.92, up 0.62% on the day. Volume was 274,190, behind March 22 and April 7 in the past 21 trading days.
ZPR closed at 10.75, up 0.09% on the day. Volume of 288,360 was near the median of the past 21 trading days.
Five-year Canada yields were up 7bp to 2.61% today.
Apparently there will be a tax change with respect to shorting dividend-paying stocks:
The budget released Thursday calls it the “double-deduction loophole,” which allows some Canadian financial institutions to use “hedging and short selling arrangements in aggressive tax planning strategies.” By closing the loophole, the government says, it can add $635-million to federal coffers over five years starting in 2022-23, and $150-million annually afterward.
Here’s what happens: A financial institution shorts a stock, which means they borrow it, sell the shares, and keep the proceeds with a promise to repay the shares later. At the same time, the financial institution owns the same number of shares and collects the dividends.
An entity that shorts a stock can deduct the interest it pays for borrowing as an expense. And a corporation that collects dividends from another corporation can offset its income with those dividends.
Budget 2022 proposes to amend the Income Tax Act to deny the deduction for a dividend received where the taxpayer has entered into these paired short-sale transactions.
I didn’t understand that, so I looked at the budget itself:
Some Canadian financial institutions have been using hedging and short selling arrangements in aggressive tax planning strategies. Put simply, two different parts of an institution take different positions in relation to a Canadian dividend-paying stock—one short, or betting against the stock; one long, or betting on the stock—to take advantage of special treatment that those Canadian stocks receive.
Budget 2022 proposes to amend the Income Tax Act to deny the deduction for a dividend received where the taxpayer has entered into such transactions.
This measure would increase federal revenues by $635 million over five years starting in 2022-23, and by $150 million ongoing.
So I don’t think this will have any effect on market efficiency, since market-makers will still be able to short stock without any changes to the tax treatment – but if anybody thinks differently, let me know in the comments!
Meanwhile, in the real world of working for a living:
Canada’s unemployment rate hit a record low in March as employers bulked up their staffing levels, the latest sign of rapid expansion in the country’s labour market.
The economy added 73,000 positions last month, following a blowout return of 337,000 in February, Statistics Canada said Friday. The unemployment rate fell to 5.3 per cent, which is the lowest in nearly five decades of comparable data from the country’s Labour Force Survey.
The job gains in March were entirely in full-time positions, paced by Ontario (35,000) and Quebec (27,000), and with the private sector accounting for more than half the increase.
Several analysts said the upbeat job numbers reinforced their view that the Bank of Canada will raise its benchmark interest rate by 50 basis points next week. (A basis point is 1/100th of a percentage point.) The central bank has not hiked rates by that magnitude since 2000.
…
Those tight conditions are leading to better pay for employees. Average hourly wages rose 3.4 per cent in March on an annual basis, accelerating from 3.1 per cent in February. That said, the country’s inflation rate recently hit a three-decade high of 5.7 per cent, meaning the average worker is effectively seeing a pay cut and the loss of purchasing power.
Huge volume in EMA.PR.L today was driven by a cross done through Scotia of 1,797,200 shares. It looks like somebody somewhere panicked and really really really wanted to sell. Trades in sequence reported by the Toronto Exchange are:
RBC sold 500 shares to Anonymous at 21.45, time 1:41pm
Scotia sold 100 shares to TD at 21.28, time 2:25pm
Scotia sold 500 shares to RBC at 21.01, time 2:25pm
Scotia crossed 1,797,200 shares at 20.50, time 2:25pm
So, transaction costs on the trade amounted to about 1.8-million + commission; but at a nickel a share, commission is a mere bagatelle. On Monday, before all the excitement started, EMA.PR.L traded 5,500 shares at a VWAP of about 22.50, so Assiduous Readers are welcome to do their own complicated calculations of just what the transaction cost for this monster actually was. According to HIMIPref™ EMA.PR.L now has an Average Daily Trading Value (which dampens the effect of isolated large trading days) of about $140,000; up from Monday’s $127,000.
| 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 | 3.39 % | 3.99 % | 25,369 | 19.32 | 1 | -0.4764 % | 2,678.1 |
| FixedFloater | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 1.9950 % | 5,161.7 |
| Floater | 3.33 % | 3.38 % | 39,892 | 18.83 | 4 | 1.9950 % | 2,974.7 |
| OpRet | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.0661 % | 3,631.1 |
| SplitShare | 4.63 % | 4.50 % | 49,516 | 3.52 | 6 | 0.0661 % | 4,336.3 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.0661 % | 3,383.4 |
| Perpetual-Premium | 5.51 % | 5.28 % | 65,471 | 14.55 | 16 | 0.3891 % | 3,100.3 |
| Perpetual-Discount | 5.46 % | 5.47 % | 57,449 | 14.66 | 18 | 1.5307 % | 3,401.8 |
| FixedReset Disc | 4.37 % | 5.54 % | 130,851 | 14.88 | 49 | 0.9131 % | 2,628.9 |
| Insurance Straight | 5.39 % | 5.37 % | 87,055 | 14.83 | 20 | 0.9012 % | 3,330.6 |
| FloatingReset | 3.57 % | 3.90 % | 51,809 | 17.67 | 2 | 1.3325 % | 2,777.5 |
| FixedReset Prem | 4.86 % | 4.58 % | 149,536 | 1.95 | 19 | 0.4890 % | 2,654.3 |
| FixedReset Bank Non | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.9131 % | 2,687.3 |
| FixedReset Ins Non | 4.37 % | 5.54 % | 84,341 | 14.64 | 15 | 1.6913 % | 2,744.4 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| CM.PR.Q | FixedReset Disc | -11.50 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-04-08 Maturity Price : 20.00 Evaluated at bid price : 20.00 Bid-YTW : 6.16 % |
| BAM.PR.T | FixedReset Disc | -5.51 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-04-08 Maturity Price : 18.52 Evaluated at bid price : 18.52 Bid-YTW : 6.24 % |
| EMA.PR.L | Perpetual-Discount | -2.80 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-04-08 Maturity Price : 20.86 Evaluated at bid price : 20.86 Bid-YTW : 5.61 % |
| BAM.PF.G | FixedReset Disc | -2.38 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-04-08 Maturity Price : 20.50 Evaluated at bid price : 20.50 Bid-YTW : 6.17 % |
| CU.PR.F | Perpetual-Discount | -1.62 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-04-08 Maturity Price : 21.30 Evaluated at bid price : 21.30 Bid-YTW : 5.35 % |
| ELF.PR.H | Perpetual-Premium | -1.41 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-04-08 Maturity Price : 24.25 Evaluated at bid price : 24.55 Bid-YTW : 5.61 % |
| POW.PR.D | Perpetual-Discount | -1.09 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-04-08 Maturity Price : 22.49 Evaluated at bid price : 22.75 Bid-YTW : 5.51 % |
| SLF.PR.C | Insurance Straight | 1.04 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-04-08 Maturity Price : 21.32 Evaluated at bid price : 21.32 Bid-YTW : 5.26 % |
| CU.PR.C | FixedReset Disc | 1.11 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-04-08 Maturity Price : 22.12 Evaluated at bid price : 22.75 Bid-YTW : 5.54 % |
| TD.PF.C | FixedReset Disc | 1.12 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-04-08 Maturity Price : 21.30 Evaluated at bid price : 21.60 Bid-YTW : 5.42 % |
| POW.PR.G | Perpetual-Premium | 1.13 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2022-05-08 Maturity Price : 25.00 Evaluated at bid price : 25.00 Bid-YTW : 4.33 % |
| BAM.PF.J | FixedReset Prem | 1.13 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2022-12-31 Maturity Price : 25.00 Evaluated at bid price : 24.98 Bid-YTW : 5.01 % |
| TD.PF.D | FixedReset Disc | 1.14 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-04-08 Maturity Price : 21.91 Evaluated at bid price : 22.25 Bid-YTW : 5.56 % |
| BIP.PR.B | FixedReset Prem | 1.15 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2025-12-31 Maturity Price : 25.00 Evaluated at bid price : 26.30 Bid-YTW : 4.04 % |
| BAM.PF.B | FixedReset Disc | 1.17 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-04-08 Maturity Price : 21.28 Evaluated at bid price : 21.56 Bid-YTW : 6.00 % |
| PVS.PR.I | SplitShare | 1.18 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-10-31 Maturity Price : 25.00 Evaluated at bid price : 25.75 Bid-YTW : 3.98 % |
| NA.PR.E | FixedReset Disc | 1.23 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-04-08 Maturity Price : 23.30 Evaluated at bid price : 23.82 Bid-YTW : 5.38 % |
| IFC.PR.E | Insurance Straight | 1.25 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-04-08 Maturity Price : 23.94 Evaluated at bid price : 24.22 Bid-YTW : 5.39 % |
| FTS.PR.H | FixedReset Disc | 1.33 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-04-08 Maturity Price : 15.20 Evaluated at bid price : 15.20 Bid-YTW : 6.04 % |
| TD.PF.A | FixedReset Disc | 1.41 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-04-08 Maturity Price : 21.29 Evaluated at bid price : 21.58 Bid-YTW : 5.40 % |
| GWO.PR.T | Insurance Straight | 1.44 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-04-08 Maturity Price : 23.65 Evaluated at bid price : 23.92 Bid-YTW : 5.41 % |
| FTS.PR.M | FixedReset Disc | 1.44 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-04-08 Maturity Price : 21.10 Evaluated at bid price : 21.10 Bid-YTW : 5.89 % |
| GWO.PR.G | Insurance Straight | 1.47 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-04-08 Maturity Price : 23.20 Evaluated at bid price : 23.50 Bid-YTW : 5.56 % |
| BAM.PR.Z | FixedReset Disc | 1.52 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-04-08 Maturity Price : 23.35 Evaluated at bid price : 24.00 Bid-YTW : 5.79 % |
| PWF.PR.R | Perpetual-Premium | 1.52 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-04-08 Maturity Price : 24.34 Evaluated at bid price : 24.65 Bid-YTW : 5.58 % |
| TD.PF.E | FixedReset Disc | 1.56 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-04-08 Maturity Price : 22.29 Evaluated at bid price : 22.85 Bid-YTW : 5.45 % |
| MFC.PR.C | Insurance Straight | 1.56 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-04-08 Maturity Price : 21.27 Evaluated at bid price : 21.54 Bid-YTW : 5.26 % |
| TD.PF.B | FixedReset Disc | 1.64 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-04-08 Maturity Price : 21.38 Evaluated at bid price : 21.70 Bid-YTW : 5.42 % |
| MFC.PR.I | FixedReset Ins Non | 1.67 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2022-09-19 Maturity Price : 25.00 Evaluated at bid price : 24.95 Bid-YTW : 5.36 % |
| RY.PR.S | FixedReset Disc | 1.72 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-04-08 Maturity Price : 23.88 Evaluated at bid price : 24.20 Bid-YTW : 5.19 % |
| BAM.PF.C | Perpetual-Discount | 1.76 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-04-08 Maturity Price : 21.37 Evaluated at bid price : 21.37 Bid-YTW : 5.72 % |
| TD.PF.J | FixedReset Disc | 1.76 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-04-08 Maturity Price : 23.76 Evaluated at bid price : 24.25 Bid-YTW : 5.43 % |
| PWF.PR.P | FixedReset Disc | 1.78 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-04-08 Maturity Price : 16.00 Evaluated at bid price : 16.00 Bid-YTW : 5.77 % |
| SLF.PR.J | FloatingReset | 1.82 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-04-08 Maturity Price : 16.80 Evaluated at bid price : 16.80 Bid-YTW : 3.27 % |
| GWO.PR.P | Insurance Straight | 1.84 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-04-08 Maturity Price : 24.09 Evaluated at bid price : 24.35 Bid-YTW : 5.58 % |
| BAM.PF.I | FixedReset Prem | 1.92 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2027-03-31 Maturity Price : 25.00 Evaluated at bid price : 26.00 Bid-YTW : 4.54 % |
| FTS.PR.J | Perpetual-Discount | 1.97 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-04-08 Maturity Price : 22.46 Evaluated at bid price : 22.72 Bid-YTW : 5.28 % |
| CU.PR.D | Perpetual-Discount | 2.00 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-04-08 Maturity Price : 22.71 Evaluated at bid price : 23.00 Bid-YTW : 5.38 % |
| FTS.PR.K | FixedReset Disc | 2.00 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-04-08 Maturity Price : 19.92 Evaluated at bid price : 19.92 Bid-YTW : 5.82 % |
| IFC.PR.F | Insurance Straight | 2.06 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-04-08 Maturity Price : 24.25 Evaluated at bid price : 24.75 Bid-YTW : 5.37 % |
| RY.PR.J | FixedReset Disc | 2.06 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-04-08 Maturity Price : 22.27 Evaluated at bid price : 22.75 Bid-YTW : 5.49 % |
| RY.PR.Z | FixedReset Disc | 2.17 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-04-08 Maturity Price : 21.65 Evaluated at bid price : 22.08 Bid-YTW : 5.35 % |
| RY.PR.H | FixedReset Disc | 2.18 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-04-08 Maturity Price : 21.59 Evaluated at bid price : 22.00 Bid-YTW : 5.39 % |
| IAF.PR.I | FixedReset Ins Non | 2.19 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-04-08 Maturity Price : 23.75 Evaluated at bid price : 24.27 Bid-YTW : 5.51 % |
| MFC.PR.B | Insurance Straight | 2.28 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-04-08 Maturity Price : 21.74 Evaluated at bid price : 21.99 Bid-YTW : 5.32 % |
| GWO.PR.Y | Insurance Straight | 2.33 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-04-08 Maturity Price : 21.27 Evaluated at bid price : 21.55 Bid-YTW : 5.24 % |
| MFC.PR.J | FixedReset Ins Non | 2.37 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-04-08 Maturity Price : 23.18 Evaluated at bid price : 23.75 Bid-YTW : 5.49 % |
| PWF.PR.Z | Perpetual-Premium | 2.38 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-04-08 Maturity Price : 22.80 Evaluated at bid price : 23.20 Bid-YTW : 5.54 % |
| TRP.PR.E | FixedReset Disc | 2.41 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-04-08 Maturity Price : 19.16 Evaluated at bid price : 19.16 Bid-YTW : 6.25 % |
| TRP.PR.C | FixedReset Disc | 2.44 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-04-08 Maturity Price : 14.26 Evaluated at bid price : 14.26 Bid-YTW : 6.39 % |
| IAF.PR.B | Insurance Straight | 2.73 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-04-08 Maturity Price : 22.33 Evaluated at bid price : 22.60 Bid-YTW : 5.11 % |
| NA.PR.W | FixedReset Disc | 2.78 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-04-08 Maturity Price : 21.88 Evaluated at bid price : 22.15 Bid-YTW : 5.29 % |
| BMO.PR.T | FixedReset Disc | 2.90 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-04-08 Maturity Price : 21.31 Evaluated at bid price : 21.61 Bid-YTW : 5.47 % |
| BMO.PR.Y | FixedReset Disc | 2.91 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-04-08 Maturity Price : 22.18 Evaluated at bid price : 22.65 Bid-YTW : 5.42 % |
| IFC.PR.A | FixedReset Ins Non | 3.21 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-04-08 Maturity Price : 18.95 Evaluated at bid price : 18.95 Bid-YTW : 5.72 % |
| BAM.PR.B | Floater | 3.24 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-04-08 Maturity Price : 14.00 Evaluated at bid price : 14.00 Bid-YTW : 3.39 % |
| BAM.PR.X | FixedReset Disc | 3.25 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-04-08 Maturity Price : 18.12 Evaluated at bid price : 18.12 Bid-YTW : 6.14 % |
| TRP.PR.B | FixedReset Disc | 3.35 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-04-08 Maturity Price : 13.58 Evaluated at bid price : 13.58 Bid-YTW : 6.40 % |
| PWF.PR.T | FixedReset Disc | 3.63 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-04-08 Maturity Price : 21.60 Evaluated at bid price : 22.00 Bid-YTW : 5.55 % |
| PWF.PR.A | Floater | 4.20 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-04-08 Maturity Price : 14.90 Evaluated at bid price : 14.90 Bid-YTW : 3.20 % |
| MFC.PR.M | FixedReset Ins Non | 4.58 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-04-08 Maturity Price : 21.25 Evaluated at bid price : 21.25 Bid-YTW : 5.69 % |
| MFC.PR.Q | FixedReset Ins Non | 4.91 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-04-08 Maturity Price : 22.81 Evaluated at bid price : 23.30 Bid-YTW : 5.53 % |
| BNS.PR.I | FixedReset Disc | 5.22 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-04-08 Maturity Price : 23.87 Evaluated at bid price : 24.20 Bid-YTW : 5.18 % |
| MFC.PR.N | FixedReset Ins Non | 5.79 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-04-08 Maturity Price : 21.01 Evaluated at bid price : 21.01 Bid-YTW : 5.64 % |
| PWF.PF.A | Perpetual-Discount | 37.67 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-04-08 Maturity Price : 20.65 Evaluated at bid price : 20.65 Bid-YTW : 5.46 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| EMA.PR.L | Perpetual-Discount | 1,807,540 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-04-08 Maturity Price : 20.86 Evaluated at bid price : 20.86 Bid-YTW : 5.61 % |
| CM.PR.R | FixedReset Prem | 54,279 | YTW SCENARIO Maturity Type : Call Maturity Date : 2022-07-31 Maturity Price : 25.00 Evaluated at bid price : 25.00 Bid-YTW : 3.65 % |
| IFC.PR.K | Perpetual-Premium | 41,187 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-04-08 Maturity Price : 24.61 Evaluated at bid price : 25.01 Bid-YTW : 5.28 % |
| TRP.PR.K | FixedReset Prem | 40,200 | YTW SCENARIO Maturity Type : Call Maturity Date : 2022-05-31 Maturity Price : 25.00 Evaluated at bid price : 25.22 Bid-YTW : 2.65 % |
| TRP.PR.B | FixedReset Disc | 24,275 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-04-08 Maturity Price : 13.58 Evaluated at bid price : 13.58 Bid-YTW : 6.40 % |
| NA.PR.G | FixedReset Prem | 23,900 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-04-08 Maturity Price : 23.88 Evaluated at bid price : 24.24 Bid-YTW : 5.49 % |
| There were 7 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| PVS.PR.I | SplitShare | Quote: 25.75 – 30.00 Spot Rate : 4.2500 Average : 2.7631 YTW SCENARIO |
| CM.PR.Q | FixedReset Disc | Quote: 20.00 – 22.89 Spot Rate : 2.8900 Average : 1.6446 YTW SCENARIO |
| BAM.PF.G | FixedReset Disc | Quote: 20.50 – 23.50 Spot Rate : 3.0000 Average : 1.8918 YTW SCENARIO |
| BAM.PR.T | FixedReset Disc | Quote: 18.52 – 20.35 Spot Rate : 1.8300 Average : 1.1175 YTW SCENARIO |
| PWF.PR.L | Perpetual-Discount | Quote: 22.97 – 24.23 Spot Rate : 1.2600 Average : 0.7433 YTW SCENARIO |
| EMA.PR.L | Perpetual-Discount | Quote: 20.86 – 21.93 Spot Rate : 1.0700 Average : 0.6898 YTW SCENARIO |
How does a trade like Emera discussed above work? Is it pre negotiated price between parties and routed through the broker?
You, as a Portfolio Manager, call up your guy on a broker’s institutional desk and tell him ‘I want to sell 1.8 million shares of EMA.PR.L, what can you do for me?’
So you discuss it. Maybe you give it to him to ‘work’ … that is, you don’t show it to any other desk and he goes through his rolodex and tries to find somebody to buy it. Maybe you’ve given it to him ‘firm’ with a minimum price; maybe he has it ‘subject and contingent’, meaning he will get back to you with a number and you’ll consider it. Maybe he’ll try putting an iceberg order on the Exchange and try to sell as many as he can that way (if it’s a firm order!), probably not; but maybe (for instance, you could take the price on such an order down so much per day, and as the price got lower you’d hope the guys on your rolodex would get more interested). Anyway, you agree on what his job is and how much commission he’ll get.
Eventually, he finds a buyer at some price (or maybe you get fed up, cancel the order and show it to someone else). Maybe the buyer he ‘finds’ is himself (and I’ll bet a nickel that’s what happened here).
During my life as a bond guy, we once inherited a portfolio with some wierd Ontario bonds in it; I forget the details, but there was some kind of optionality that made determining a fair price more complex than usual (the market price was easy to get, even in those days, but ‘fair’ is something else). It wasn’t a big issue, so there wouldn’t be many shops that would even attempt to price it, even if they wanted to. So I called the firm we won the account from, and got through to the Portfolio Manager who knew about the bonds. I told him we were going to sell these things and asked him if he would be interested in purchasing. He was very interested and was willing to pay ‘market price’, whatever that means, because he thought the optionality was extremely valuable.
So I called my sales guy at one of our mutual brokers and told him I wanted to sell $X par value of Bond Y and told him that my psychic powers had revealed to me that he would shortly get a call from somebody who wanted to buy $X par value of Bond Y. I told him he could facilitate the transaction, but not take too bloody much for himself and we’d be checking.
And that’s how THAT trade got done. It was fun! But it was the only time in my life I’ve ever talked to the ultimate counterparty.
Wow. Awesome. Thanks for the detailed explanation and the lovely anecdote. Your contribution and help is so deeply appreciated.
The basic thing to remember is that being on the institutional desk at a major brokerage is exactly like being the sales manager at a used car dealership. Your job is to have a good idea of what people want to buy and sell and to keep your inventory turning over as often as possible. If you buy a car from somebody and it sits on your lot for six months, you’ve lost all your profit.
So if, for instance, somebody calls you and asks if you have any five-year-old Toyotas available, you remember that. And maybe the next week you’ll be more willing to buy a five-year-old Toyota that somebody wants to sell you, especially if you can return the first guy’s call to confirm he’s still interested beforehand.
Don’t let the ‘Masters of the Universe’ mythology fool you. These guys not only know very little about portfolio management, they couldn’t care less anyway. They’re just used car salesmen with an extra digit on their paycheques.
Thanks for the further insight. It’s usually the case with many sales jobs wherein few salespeople understand the subject in detail. Their job is to sell after all and not be the domain expert.
Re: the double-deduction loophole. It is quite likely this was the Fed’s reaction to the verdict in the Palette Estate v. The Queen in tax court (2021 TCC 11) – https://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/item/493113/index.do – where a very impressive amount of capital was tax-deferred using such techniques.
Love the comparison of the bond desk to a used car showroom! Couldn’t agree more. skeptical, if you notice that trading volumes, both in fixed income & equities, tends to peak on Thursdays, then fall off dramatically on Fridays . . . the explanation seems to be that these pro financial/fund managers like to take Fridays off, especially in the summer. A four day work week is more than enough, isn’t it? Last sarcastic item I have would be this: if a pro bond desk guy is a used car salesman with an extra digit on his paycheck . . . is a real estate agent a used car salesman with 2 extra digits on his/her paycheck? lol
Anyway, bond yields continue to rise, supposedly focused on the heavily publicized half percentage point rise in our bank rate coming up. Question is . . . will prefs rise on the optimism of higher future yields from the rising 5Y bond yield? Or will they tank on the sometimes criteria of a pref being nothing more than a bond?
This is not an inefficient market; its a retarded one (but love to be here for the ride!)
It is quite likely this was the Fed’s reaction to the verdict in the Palette Estate v. The Queen in tax court (2021 TCC 11)
Thank you, Sacha, that’s very useful! You have solved my bedtime-reading problem for this week, at the very least!
And welcome to the blog!
I read through the link Sasha provided and it disturbed my sleep. It was very interesting though.
I have questions that can not be answered such as how the counter party reported the yearly income and how the tax return looked when this tax avoidance strategy finally ended.
The tax deferral strategy depends on the currency exchange rate changing over time. Since the size of the change in exchange rate is unknown at the start of the process, how was the original amount of the offsetting transactions chosen to achieve the desired result? it would be easy to achieve if the transactions were written up and backdated after the change in exchange rates occurred. Since that makes it appear like the transactions would not be real transactions, IMHO, I am sure that was not how it actually happened.
It also seems to me like it has taken a very long time for the government to try to defeat the strategy.
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