PrefBlog

TXPR closed at 576.60, down 0.65% on the day. Volume today was 1.21-million, near the median of the past 21 trading days.

CPD closed at 11.47, down 0.78% on the day. Volume was 93,580, slightly below the median of the past 21 trading days.

ZPR closed at 9.525, down 0.16% on the day. Volume was 171,820, well below the median of the past 21 trading days.

Five-year Canada yields were were down to 2.90% today.

The preferred market was weak all day, but it was a late day collapse that did the damage in our sector. More generally, pundits blamed earnings:

The S&P 500 ended nominally lower on Wednesday as a string of corporate earnings ran the gamut from downbeat to dismal, reviving worries over the economic impact of the U.S. Federal Reserve’s restrictive policy. The TSX also closed with a modest loss, as market players took in what could be the final Bank of Canada rate hike for this monetary tightening cycle and began aggressively pricing in the possibility of interest rate cuts before year end.

The S&P/TSX Composite index and all three major U.S. stock indexes pared their losses throughout the afternoon to close well off session lows, with the blue-chip Dow eking out a small gain in the final minutes.

The tech-laden Nasdaq was weighed down after Microsoft Corp, the first major technology firm to post quarterly results, offered dour guidance and raised red flags with respect to its megacap peers which have yet to report.
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Interest rate probabilities show about 89% odds of the bank making no change to its overnight rate at its next announcement on March 8, according to Refinitiv Eikon data.

But following the bank’s 10 am announcement and Monetary Policy Report, credit markets started making their most aggressive bets yet that the central bank’s key lending rate will start coming down later this year as the bank shifts from inflation fighting to providing support to a slowing economy. They are now fully pricing in a 25 basis point cut by the Oct. 25 Bank of Canada meeting. And they are positioned for an overnight rate of 4.07% by the Dec. 6 meeting. That implies money markets are getting close to pricing in a 50 basis point cut in the overnight rate by the end of this year.

PerpetualDiscounts now yield 5.99%, equivalent to 7.79% interest at the standard equivalency factor of 1.3x. Long corporates yielded 4.89% on 2023-1-20 and since then the closing price has changed from 15.51 to 15.59, an increase of 52bp in price, with a Duration of 12.36 (BMO doesn’t specify whether this is Macaulay or Modified Duration; I will assume Modified) which implies a decline in yield of about 4bp since 1/20 to 4.85%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has narrowed to about 295bp from the 305bp reported January 18.

This entry was posted on Wednesday, January 25th, 2023 at 8:06 pm and is filed under Market Action. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.