Peter Misek of Framework Venture Partners takes us down memory lane:
Let’s revisit the past. In 1993, the new Chrétien government was ripe with ideas for pumping stimulus into the country. Its problems were familiar: health and education were clamouring for investment and every government department had needs.
Less than a year into the government’s mandate, a usually uneventful moment became a watershed lesson for Canada. With hours to go before a regular bond auction, there were no bids at any price, Mr. Chrétien confirmed in a 2011 Reuters interview.
…
At the last minute, the auction received bids, but the damage was done. In a rare moment of clarity, common sense and heroism, Mr. Chrétien called emergency cabinet meetings and set the painful but needed course toward renewed prosperity in Canada.
Yes, it was common knowledge in the industry that the GOC bond auctions had come within a hairsbreadth of failing in 1993. Not enough people know that.
One of the truisms of politics is that the politicians generally know what has to be done; they just don’t know how to get re-elected if they do it. We were very fortunate that at that time there was a Liberal government in Canada: they had the political room to take the harsh steps that were required. If it had been a Progressive Conservative government in power, doing so would have reinforced their political stereotypes and in short order have taken them to the political wilderness – as Mike Harris and the Ontario PCs found out soon enough.
It’s time to break up the banks. This is tied selling:
Some of Canada’s largest banks are blocking online investors from buying high-interest-savings exchange traded funds, which compete with the banks’ own lucrative deposit accounts.
The discount brokerage arms at Royal Bank of Canada, Bank of Montreal and Toronto-Dominion Bank do not allow do-it-yourself investors to purchase high-interest-savings ETFs, also known as cash ETFs, or HISA ETFs. The funds, which are run by independent asset managers, mainly invest in pools of banks’ high-interest savings accounts and deposits.
Rising yields are doing wonders for the solvency ratios of DB pension plans:
Consulting firm Mercer Canada Ltd. said its Mercer Pension Health Pulse, which tracks the median solvency ratio of the defined benefit (DB) pension plans of Mercer clients, increased from 108 per cent on March 31 to 109 per cent by June 30. The measure was 96 per cent at the end of 2020 and 103 per cent at the end of 2021
…
Aon PLC … said its pension risk tracker, which measures the aggregate solvency of DB pension plans of companies in the S&P/TSX Composite Index, increased from 100.5 per cent to 101.5 per cent during the past three months. It has risen all the way from 89.4 per cent at the end of 2020 and 97.2 per cent at the end of 2021.
| 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 | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -1.4646 % | 2,498.4 |
| FixedFloater | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -1.4646 % | 4,791.9 |
| Floater | 4.98 % | 4.99 % | 41,844 | 15.55 | 3 | -1.4646 % | 2,761.6 |
| OpRet | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.1215 % | 3,453.8 |
| SplitShare | 4.92 % | 5.91 % | 50,470 | 3.18 | 8 | -0.1215 % | 4,124.5 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.1215 % | 3,218.1 |
| Perpetual-Premium | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.0465 % | 2,850.2 |
| Perpetual-Discount | 5.98 % | 6.11 % | 66,770 | 13.77 | 34 | 0.0465 % | 3,108.0 |
| FixedReset Disc | 4.71 % | 6.31 % | 111,883 | 13.72 | 56 | -0.2379 % | 2,500.6 |
| Insurance Straight | 5.99 % | 6.10 % | 92,231 | 13.79 | 18 | 0.0943 % | 3,004.2 |
| FloatingReset | 5.80 % | 6.07 % | 44,062 | 13.83 | 2 | 0.0308 % | 2,635.4 |
| FixedReset Prem | 5.00 % | 4.97 % | 138,745 | 1.97 | 10 | -0.1066 % | 2,607.4 |
| FixedReset Bank Non | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.2379 % | 2,556.1 |
| FixedReset Ins Non | 4.66 % | 6.34 % | 61,658 | 13.69 | 14 | -0.0233 % | 2,616.0 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| BAM.PF.B | FixedReset Disc | -4.09 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-07-04 Maturity Price : 19.00 Evaluated at bid price : 19.00 Bid-YTW : 7.36 % |
| BAM.PF.G | FixedReset Disc | -3.77 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-07-04 Maturity Price : 18.10 Evaluated at bid price : 18.10 Bid-YTW : 7.49 % |
| BAM.PR.K | Floater | -3.03 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-07-04 Maturity Price : 12.80 Evaluated at bid price : 12.80 Bid-YTW : 5.09 % |
| POW.PR.C | Perpetual-Discount | -2.50 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-07-04 Maturity Price : 23.14 Evaluated at bid price : 23.40 Bid-YTW : 6.22 % |
| TRP.PR.C | FixedReset Disc | -2.29 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-07-04 Maturity Price : 13.20 Evaluated at bid price : 13.20 Bid-YTW : 7.55 % |
| EIT.PR.A | SplitShare | -2.26 % | YTW SCENARIO Maturity Type : Soft Maturity Maturity Date : 2024-03-14 Maturity Price : 25.00 Evaluated at bid price : 24.26 Bid-YTW : 6.88 % |
| BAM.PF.E | FixedReset Disc | -2.01 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-07-04 Maturity Price : 18.00 Evaluated at bid price : 18.00 Bid-YTW : 7.31 % |
| TD.PF.C | FixedReset Disc | -1.82 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-07-04 Maturity Price : 20.55 Evaluated at bid price : 20.55 Bid-YTW : 6.31 % |
| BMO.PR.S | FixedReset Disc | -1.73 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-07-04 Maturity Price : 21.32 Evaluated at bid price : 21.62 Bid-YTW : 6.11 % |
| CM.PR.P | FixedReset Disc | -1.69 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-07-04 Maturity Price : 20.40 Evaluated at bid price : 20.40 Bid-YTW : 6.24 % |
| IFC.PR.C | FixedReset Disc | -1.58 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-07-04 Maturity Price : 19.29 Evaluated at bid price : 19.29 Bid-YTW : 6.70 % |
| BAM.PF.D | Perpetual-Discount | -1.47 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-07-04 Maturity Price : 20.10 Evaluated at bid price : 20.10 Bid-YTW : 6.15 % |
| BMO.PR.Y | FixedReset Disc | -1.40 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-07-04 Maturity Price : 21.20 Evaluated at bid price : 21.20 Bid-YTW : 6.27 % |
| MFC.PR.F | FixedReset Ins Non | -1.37 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-07-04 Maturity Price : 14.40 Evaluated at bid price : 14.40 Bid-YTW : 6.91 % |
| BAM.PR.C | Floater | -1.14 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-07-04 Maturity Price : 13.05 Evaluated at bid price : 13.05 Bid-YTW : 4.99 % |
| TRP.PR.B | FixedReset Disc | -1.10 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-07-04 Maturity Price : 12.63 Evaluated at bid price : 12.63 Bid-YTW : 7.61 % |
| MIC.PR.A | Perpetual-Discount | -1.01 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-07-04 Maturity Price : 21.48 Evaluated at bid price : 21.48 Bid-YTW : 6.34 % |
| FTS.PR.H | FixedReset Disc | 1.01 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-07-04 Maturity Price : 15.00 Evaluated at bid price : 15.00 Bid-YTW : 6.78 % |
| PWF.PR.E | Perpetual-Discount | 1.11 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-07-04 Maturity Price : 22.55 Evaluated at bid price : 22.80 Bid-YTW : 6.14 % |
| TRP.PR.E | FixedReset Disc | 1.11 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-07-04 Maturity Price : 18.20 Evaluated at bid price : 18.20 Bid-YTW : 7.13 % |
| RY.PR.N | Perpetual-Discount | 1.20 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-07-04 Maturity Price : 23.18 Evaluated at bid price : 23.66 Bid-YTW : 5.22 % |
| BAM.PR.X | FixedReset Disc | 1.46 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-07-04 Maturity Price : 17.33 Evaluated at bid price : 17.33 Bid-YTW : 6.98 % |
| BIP.PR.A | FixedReset Disc | 1.75 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-07-04 Maturity Price : 20.35 Evaluated at bid price : 20.35 Bid-YTW : 7.56 % |
| PWF.PR.P | FixedReset Disc | 1.75 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-07-04 Maturity Price : 14.50 Evaluated at bid price : 14.50 Bid-YTW : 7.08 % |
| FTS.PR.G | FixedReset Disc | 1.76 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-07-04 Maturity Price : 20.20 Evaluated at bid price : 20.20 Bid-YTW : 6.47 % |
| GWO.PR.Y | Insurance Straight | 1.83 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-07-04 Maturity Price : 18.90 Evaluated at bid price : 18.90 Bid-YTW : 6.00 % |
| CU.PR.F | Perpetual-Discount | 1.91 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-07-04 Maturity Price : 19.24 Evaluated at bid price : 19.24 Bid-YTW : 5.93 % |
| BMO.PR.W | FixedReset Disc | 2.22 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-07-04 Maturity Price : 20.70 Evaluated at bid price : 20.70 Bid-YTW : 6.23 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| GWO.PR.M | Insurance Straight | 22,197 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-07-04 Maturity Price : 23.32 Evaluated at bid price : 23.60 Bid-YTW : 6.18 % |
| CM.PR.R | FixedReset Disc | 19,700 | YTW SCENARIO Maturity Type : Call Maturity Date : 2022-08-30 Maturity Price : 25.00 Evaluated at bid price : 24.95 Bid-YTW : 3.86 % |
| CM.PR.O | FixedReset Disc | 18,800 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-07-04 Maturity Price : 21.20 Evaluated at bid price : 21.20 Bid-YTW : 6.11 % |
| RS.PR.A | SplitShare | 16,311 | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-12-31 Maturity Price : 10.00 Evaluated at bid price : 10.06 Bid-YTW : 5.04 % |
| POW.PR.C | Perpetual-Discount | 14,865 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-07-04 Maturity Price : 23.14 Evaluated at bid price : 23.40 Bid-YTW : 6.22 % |
| NA.PR.C | FixedReset Prem | 12,500 | YTW SCENARIO Maturity Type : Call Maturity Date : 2022-11-15 Maturity Price : 25.00 Evaluated at bid price : 25.00 Bid-YTW : 6.16 % |
| There were 1 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| BMO.PR.Y | FixedReset Disc | Quote: 21.20 – 25.00 Spot Rate : 3.8000 Average : 2.0457 YTW SCENARIO |
| CU.PR.G | Perpetual-Discount | Quote: 19.15 – 23.00 Spot Rate : 3.8500 Average : 2.2892 YTW SCENARIO |
| TRP.PR.C | FixedReset Disc | Quote: 13.20 – 17.88 Spot Rate : 4.6800 Average : 3.6335 YTW SCENARIO |
| GWO.PR.Y | Insurance Straight | Quote: 18.90 – 21.15 Spot Rate : 2.2500 Average : 1.2919 YTW SCENARIO |
| IFC.PR.E | Insurance Straight | Quote: 22.10 – 24.00 Spot Rate : 1.9000 Average : 1.3078 YTW SCENARIO |
| CU.PR.J | Perpetual-Discount | Quote: 19.91 – 21.50 Spot Rate : 1.5900 Average : 1.1098 YTW SCENARIO |
It seems that the rate reset/floater market is convinced that higher rates are transitory. The perpetual market is also convinced that higher rates/inflation are persistent. One of these is wrong.
Maybe I’m wrong but there isn’t much rationality in the pref market currently.
GOC 5yr & 20yr bond yields have dropped 50/60bps in a short while and perpetuals have not moved one bit, still trading for many of them at their multi-decades low (outside of the subprime and COVID crises).
I guess investors fear the R word (Recession) and sell their most illiquid or trickier to understand assets. Spread have certainly increased also.
In the meantime. I keep my seat belt tight and continue adding investment grades preferred yielding 6+% because I believe that when things settle down and they eventually will, I may find myself earning this yield for a long while plus a pretty nice capital appreciation.
I am less familiar with rate reset and since I value safety over upside, there a few interesting issues imo that would still yield about 5% at today’s price if they were to reset at a time where the 5y gvt bond yields …0.5% and above 8% at today’s rate.
And to be honest, it’s never a bad thing to read this kind of comments from J.Hymas also 🙂
“There is still a pronounced ‘risk-off’ sentiment in the market as interest rates rise, but I feel it is only a matter of time before investors start paying attention to the fundamental risk of these instruments compared to their eye-popping interest-equivalent yields.”
i find preferred share trading very relaxing … things generally move very slowly. the pref market takes it’s time to figure out what it is supposed to do. gives me plenty of time too..
my guess as to what is going to happen… is that the FED will raise 75 bpts this month, and 75 in Sept. effectively taking Fed Funds to 3.25%. Bank of Canada pretty much the same thing (though, they should probably do 1% this month and 1% next meeting)
how will preferred shares react? who knows.
i DO Know i can buy perpetuals now at ~6% and canada 10 and 30 year bonds are paying just over 3% that’s nearly 4.75% ABOVE on an interest equivalent comparison. if we really do get a recession, and CPI starts falling back to more manageable levels, then perpetuals are a steal at these levels (barring a credit event like 2008/2020).
and if not, then i’m sure my rate rest prefs will benefit eventually from higher rates. can’t do much else. besides, i got a bunch of dividends at the end of last week and that somehow made me feel better.
I am in the same boat on perps. Hard to resist 6%+ yields on investment grade issues, exception being if you can’t afford to hold.
well. if you’re not on margin, that shouldn’t be an issue.