Bond yields popped up today:
The yield on the benchmark U.S. 10-year Treasury rose for a third straight day on Wednesday, reversing an earlier decline, as investors attempted to navigate the impact of China’s reopening policy on the path of interest rate hikes by the U.S. Federal Reserve.
While China has quickly reversed course on its previous “zero-COVID” policy this month, which is likely to benefit the global economy, the change has come with a surge in cases that could hamper the economy in the short-term.
The yield on 10-year Treasury notes was up 2.5 basis points to 3.883% after hitting a six-week high of 3.89%. On Tuesday, the 10-year jumped 11.1 basis points, its biggest one-day rise since Oct. 19.
Five year Canadas are now at 3.40%.
An op-ed in the Globe looked at Marginal Effective Tax Rates:
Parents across the country may be thinking about taking on an extra shift or an extra job to pay off bills from the holiday season or keep up with the rising costs of day-to-day items. What these hard working parents pocket from extra work not only depends on the taxes they pay on that additional income, but also on how much their income-tested government benefits such as the Canada Child Benefit or the Canada Workers Benefit will be reduced or “clawed back.”
In a recent C.D. Howe Institute study, we calculate the total impact of taxes and benefit clawbacks on families with children, giving us what we call “effective” tax rates. We found that parents in low-income families in particular face high effective tax rates. For instance, more than one-in-three face the prospect of bringing home less than 50 cents of every dollar they earn from extra work. High effective rates reduce the incentive to take on more work and get ahead.
They propose four different measures to address the issue:
- Avoid Very High Rates by Better Integrating New Benefit Programs
- Benefit Shields
- Income Averaging
- Childcare Subsidization
What’s a benefit shield? I’m glad you asked:
In 2016, the Quebec government, following through on a key recommendation from the 2015 Quebec Taxation Review Committee chaired by Luc Godbout, instituted a “benefit shield”11 partly compensating workers for the loss of certain income-tested tax credits – but only in the first year after they take on more work. On the assumption that work decisions are mostly influenced by short-term financial considerations, the shield approach enables governments to provide relief from high effective tax rates at a low fiscal cost (because relief is only offered for one year after taking on extra work) while maintaining the same level of generosity of targeted cash benefits.
More than 274,000 Quebecers took advantage of the shield in 2018, for a cost of only $49 million. Originally, the credit ceiling was set at $2,500 per worker, but has since been increased to $4,000 in successive budgets (CRFFP 2019).
However, I was disappointed by the absence of a Guaranteed Annual Income as a suggested policy measure.
PerpetualDiscounts now yield 6.60%, equivalent to 8.58% interest at the standard equivalency factor of 1.3x. Long corporates yielded 4.86% on 2022-12-16 and since then the closing price has changed from 15.46 to 14.67, a decline of 511bp in price, with a Duration of 12.42 (BMO doesn’t specify whether this is Macaulay or Modified Duration; I will assume Modified) which implies an increase in yield of about 41bp since 12/16 to 5.27%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has narrowed to 330bp from the 355bp reported December 21.
| 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 | 0.8000 % | 2,421.8 |
| FixedFloater | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.8000 % | 4,645.0 |
| Floater | 8.96 % | 9.04 % | 52,713 | 10.37 | 2 | 0.8000 % | 2,677.0 |
| OpRet | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.2571 % | 3,241.9 |
| SplitShare | 5.25 % | 7.60 % | 64,607 | 2.71 | 8 | 0.2571 % | 3,871.6 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.2571 % | 3,020.7 |
| Perpetual-Premium | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.4941 % | 2,634.3 |
| Perpetual-Discount | 6.47 % | 6.60 % | 109,769 | 13.03 | 35 | -0.4941 % | 2,872.5 |
| FixedReset Disc | 5.61 % | 7.91 % | 108,602 | 11.74 | 62 | -0.2069 % | 2,142.4 |
| Insurance Straight | 6.43 % | 6.55 % | 121,443 | 13.17 | 20 | -0.2256 % | 2,794.8 |
| FloatingReset | 10.11 % | 9.59 % | 38,405 | 9.89 | 2 | -0.8664 % | 2,414.7 |
| FixedReset Prem | 6.62 % | 6.69 % | 189,201 | 4.08 | 2 | -0.0596 % | 2,372.4 |
| FixedReset Bank Non | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.2069 % | 2,190.0 |
| FixedReset Ins Non | 5.61 % | 8.12 % | 57,027 | 11.69 | 14 | -0.1815 % | 2,240.1 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| IFC.PR.C | FixedReset Disc | -15.15 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-12-28 Maturity Price : 14.00 Evaluated at bid price : 14.00 Bid-YTW : 9.51 % |
| PVS.PR.I | SplitShare | -3.00 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-10-31 Maturity Price : 25.00 Evaluated at bid price : 22.60 Bid-YTW : 8.80 % |
| TRP.PR.C | FixedReset Disc | -2.45 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-12-28 Maturity Price : 11.16 Evaluated at bid price : 11.16 Bid-YTW : 9.53 % |
| TRP.PR.B | FixedReset Disc | -2.20 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-12-28 Maturity Price : 10.65 Evaluated at bid price : 10.65 Bid-YTW : 9.61 % |
| SLF.PR.E | Insurance Straight | -2.17 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-12-28 Maturity Price : 18.00 Evaluated at bid price : 18.00 Bid-YTW : 6.30 % |
| CCS.PR.C | Insurance Straight | -2.03 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-12-28 Maturity Price : 18.82 Evaluated at bid price : 18.82 Bid-YTW : 6.69 % |
| CU.PR.J | Perpetual-Discount | -2.00 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-12-28 Maturity Price : 18.13 Evaluated at bid price : 18.13 Bid-YTW : 6.64 % |
| RY.PR.J | FixedReset Disc | -1.86 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-12-28 Maturity Price : 18.50 Evaluated at bid price : 18.50 Bid-YTW : 7.70 % |
| BN.PF.B | FixedReset Disc | -1.84 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-12-28 Maturity Price : 16.00 Evaluated at bid price : 16.00 Bid-YTW : 9.25 % |
| TRP.PR.F | FloatingReset | -1.75 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-12-28 Maturity Price : 14.59 Evaluated at bid price : 14.59 Bid-YTW : 10.87 % |
| BN.PF.E | FixedReset Disc | -1.75 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-12-28 Maturity Price : 14.60 Evaluated at bid price : 14.60 Bid-YTW : 9.51 % |
| PWF.PF.A | Perpetual-Discount | -1.74 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-12-28 Maturity Price : 17.55 Evaluated at bid price : 17.55 Bid-YTW : 6.54 % |
| TRP.PR.G | FixedReset Disc | -1.71 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-12-28 Maturity Price : 16.05 Evaluated at bid price : 16.05 Bid-YTW : 8.87 % |
| IFC.PR.K | Perpetual-Discount | -1.71 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-12-28 Maturity Price : 20.69 Evaluated at bid price : 20.69 Bid-YTW : 6.39 % |
| BN.PF.A | FixedReset Disc | -1.67 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-12-28 Maturity Price : 18.26 Evaluated at bid price : 18.26 Bid-YTW : 8.59 % |
| RY.PR.O | Perpetual-Discount | -1.64 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-12-28 Maturity Price : 21.00 Evaluated at bid price : 21.00 Bid-YTW : 5.91 % |
| BN.PR.N | Perpetual-Discount | -1.63 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-12-28 Maturity Price : 17.48 Evaluated at bid price : 17.48 Bid-YTW : 6.85 % |
| MFC.PR.B | Insurance Straight | -1.60 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-12-28 Maturity Price : 18.50 Evaluated at bid price : 18.50 Bid-YTW : 6.35 % |
| SLF.PR.C | Insurance Straight | -1.58 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-12-28 Maturity Price : 18.01 Evaluated at bid price : 18.01 Bid-YTW : 6.22 % |
| RY.PR.N | Perpetual-Discount | -1.50 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-12-28 Maturity Price : 21.03 Evaluated at bid price : 21.03 Bid-YTW : 5.91 % |
| CIU.PR.A | Perpetual-Discount | -1.45 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-12-28 Maturity Price : 17.64 Evaluated at bid price : 17.64 Bid-YTW : 6.61 % |
| SLF.PR.D | Insurance Straight | -1.38 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-12-28 Maturity Price : 17.92 Evaluated at bid price : 17.92 Bid-YTW : 6.25 % |
| FTS.PR.M | FixedReset Disc | -1.34 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-12-28 Maturity Price : 16.23 Evaluated at bid price : 16.23 Bid-YTW : 8.72 % |
| BMO.PR.F | FixedReset Disc | -1.26 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-12-28 Maturity Price : 23.00 Evaluated at bid price : 23.45 Bid-YTW : 7.25 % |
| CM.PR.P | FixedReset Disc | -1.23 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-12-28 Maturity Price : 16.80 Evaluated at bid price : 16.80 Bid-YTW : 7.96 % |
| CU.PR.H | Perpetual-Discount | -1.20 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-12-28 Maturity Price : 20.60 Evaluated at bid price : 20.60 Bid-YTW : 6.46 % |
| TRP.PR.E | FixedReset Disc | -1.14 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-12-28 Maturity Price : 14.73 Evaluated at bid price : 14.73 Bid-YTW : 9.43 % |
| MFC.PR.C | Insurance Straight | -1.09 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-12-28 Maturity Price : 18.10 Evaluated at bid price : 18.10 Bid-YTW : 6.28 % |
| TD.PF.E | FixedReset Disc | -1.09 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-12-28 Maturity Price : 19.04 Evaluated at bid price : 19.04 Bid-YTW : 7.54 % |
| BN.PR.R | FixedReset Disc | -1.08 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-12-28 Maturity Price : 13.75 Evaluated at bid price : 13.75 Bid-YTW : 9.20 % |
| MFC.PR.L | FixedReset Ins Non | -1.05 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-12-28 Maturity Price : 16.03 Evaluated at bid price : 16.03 Bid-YTW : 8.44 % |
| BN.PF.D | Perpetual-Discount | -1.04 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-12-28 Maturity Price : 18.06 Evaluated at bid price : 18.06 Bid-YTW : 6.84 % |
| POW.PR.A | Perpetual-Discount | -1.02 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-12-28 Maturity Price : 21.38 Evaluated at bid price : 21.38 Bid-YTW : 6.58 % |
| IAF.PR.B | Insurance Straight | 1.02 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-12-28 Maturity Price : 18.87 Evaluated at bid price : 18.87 Bid-YTW : 6.14 % |
| CU.PR.I | FixedReset Disc | 1.03 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2025-12-01 Maturity Price : 25.00 Evaluated at bid price : 24.60 Bid-YTW : 5.25 % |
| PVS.PR.F | SplitShare | 1.04 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2024-09-30 Maturity Price : 25.00 Evaluated at bid price : 24.30 Bid-YTW : 6.72 % |
| BN.PF.J | FixedReset Disc | 1.49 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-12-28 Maturity Price : 21.98 Evaluated at bid price : 22.50 Bid-YTW : 7.22 % |
| PVS.PR.H | SplitShare | 1.85 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2027-02-28 Maturity Price : 25.00 Evaluated at bid price : 22.00 Bid-YTW : 8.29 % |
| NA.PR.E | FixedReset Disc | 2.02 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-12-28 Maturity Price : 19.69 Evaluated at bid price : 19.69 Bid-YTW : 7.66 % |
| CM.PR.S | FixedReset Disc | 2.44 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-12-28 Maturity Price : 20.60 Evaluated at bid price : 20.60 Bid-YTW : 7.08 % |
| PVS.PR.G | SplitShare | 2.64 % | YTW SCENARIO Maturity Type : Option Certainty Maturity Date : 2026-02-28 Maturity Price : 25.00 Evaluated at bid price : 23.35 Bid-YTW : 7.42 % |
| BN.PF.I | FixedReset Disc | 2.91 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-12-28 Maturity Price : 22.08 Evaluated at bid price : 22.60 Bid-YTW : 7.45 % |
| BN.PR.X | FixedReset Disc | 4.34 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-12-28 Maturity Price : 15.14 Evaluated at bid price : 15.14 Bid-YTW : 8.32 % |
| IFC.PR.F | Insurance Straight | 4.70 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-12-28 Maturity Price : 20.70 Evaluated at bid price : 20.70 Bid-YTW : 6.45 % |
| BN.PF.H | FixedReset Disc | 5.76 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2025-12-31 Maturity Price : 25.00 Evaluated at bid price : 23.50 Bid-YTW : 7.29 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| RY.PR.Z | FixedReset Disc | 55,300 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-12-28 Maturity Price : 17.00 Evaluated at bid price : 17.00 Bid-YTW : 8.06 % |
| TRP.PR.E | FixedReset Disc | 51,950 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-12-28 Maturity Price : 14.73 Evaluated at bid price : 14.73 Bid-YTW : 9.43 % |
| IFC.PR.A | FixedReset Ins Non | 49,031 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-12-28 Maturity Price : 16.64 Evaluated at bid price : 16.64 Bid-YTW : 7.71 % |
| TRP.PR.A | FixedReset Disc | 38,064 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-12-28 Maturity Price : 13.59 Evaluated at bid price : 13.59 Bid-YTW : 9.30 % |
| GWO.PR.Y | Insurance Straight | 36,100 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-12-28 Maturity Price : 17.71 Evaluated at bid price : 17.71 Bid-YTW : 6.40 % |
| FTS.PR.M | FixedReset Disc | 34,086 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-12-28 Maturity Price : 16.23 Evaluated at bid price : 16.23 Bid-YTW : 8.72 % |
| There were 32 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| IFC.PR.C | FixedReset Disc | Quote: 14.00 – 16.51 Spot Rate : 2.5100 Average : 1.8493 YTW SCENARIO |
| PVS.PR.K | SplitShare | Quote: 20.60 – 21.80 Spot Rate : 1.2000 Average : 0.8346 YTW SCENARIO |
| PVS.PR.I | SplitShare | Quote: 22.60 – 23.80 Spot Rate : 1.2000 Average : 0.8834 YTW SCENARIO |
| BMO.PR.F | FixedReset Disc | Quote: 23.45 – 24.32 Spot Rate : 0.8700 Average : 0.5589 YTW SCENARIO |
| EIT.PR.A | SplitShare | Quote: 24.26 – 25.10 Spot Rate : 0.8400 Average : 0.5333 YTW SCENARIO |
| PVS.PR.H | SplitShare | Quote: 22.00 – 23.00 Spot Rate : 1.0000 Average : 0.7020 YTW SCENARIO |
[…] PerpetualDiscounts now yield 6.47%, equivalent to 8.41% interest at the standard equivalency factor of 1.3x. Long corporates yielded 5.30% on 2022-12-30 and since then the closing price has changed from 14.72 to 14.92, an increase of 136bp in price, with a Duration of 12.15 (BMO doesn’t specify whether this is Macaulay or Modified Duration; I will assume Modified) which implies a decline in yield of about 11bp since 12/30 to 5.19%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has been steady at about the 330bp reported December 28. […]