January 26, 2023

Well, here’s a paper that will receive some attention! One of a long series, I’ll bet … The 2021–22 Surge in Inflation by Oleksiy Kryvtsov, Jim MacGee and Luis Uzeda:

The rise in inflation in 2021–22 sparked a growing literature and debate over the causes of the surge as well as the near- and medium-term path for inflation. This review offers three key messages. First, the exceptional nature of shocks resulting from the COVID-19 pandemic and geopolitical events drove the surge in inflation and the initial underestimation by many central banks of the extent of inflationary pressures. Second, the pandemic may have
accelerated structural changes in goods and labour markets, which are likely to put pressure on goods prices and wages in the medium and long term. Third, the resulting shifts in relative prices for goods, services and labour are unlikely to be large enough to threaten a return of inflation to target but may require somewhat higher interest rates than those in the decade before the pandemic.

My favourite chart is:

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 0.00 % 0.00 % 0 0.00 0 1.0618 % 2,561.2
FixedFloater 0.00 % 0.00 % 0 0.00 0 1.0618 % 4,912.3
Floater 8.80 % 8.94 % 51,141 10.42 2 1.0618 % 2,831.0
OpRet 0.00 % 0.00 % 0 0.00 0 0.4403 % 3,414.2
SplitShare 4.92 % 6.44 % 60,011 2.82 7 0.4403 % 4,077.3
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.4403 % 3,181.3
Perpetual-Premium 0.00 % 0.00 % 0 0.00 0 0.2693 % 2,874.6
Perpetual-Discount 5.93 % 5.98 % 91,362 13.93 35 0.2693 % 3,134.6
FixedReset Disc 5.36 % 7.06 % 93,952 12.66 62 0.1890 % 2,259.1
Insurance Straight 5.82 % 5.97 % 97,919 13.90 20 0.2263 % 3,087.9
FloatingReset 9.74 % 10.10 % 43,835 9.43 2 0.0955 % 2,551.8
FixedReset Prem 6.58 % 6.18 % 172,565 4.08 2 0.1978 % 2,388.4
FixedReset Bank Non 0.00 % 0.00 % 0 0.00 0 0.1890 % 2,309.3
FixedReset Ins Non 5.41 % 6.89 % 52,727 12.79 14 0.6553 % 2,385.6
Performance Highlights
Issue Index Change Notes
CM.PR.Q FixedReset Disc -2.00 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-01-26
Maturity Price : 19.11
Evaluated at bid price : 19.11
Bid-YTW : 6.98 %
RY.PR.O Perpetual-Discount -1.97 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-01-26
Maturity Price : 22.66
Evaluated at bid price : 22.94
Bid-YTW : 5.33 %
NA.PR.G FixedReset Disc -1.95 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-01-26
Maturity Price : 21.31
Evaluated at bid price : 21.58
Bid-YTW : 6.64 %
BN.PF.C Perpetual-Discount -1.60 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-01-26
Maturity Price : 19.63
Evaluated at bid price : 19.63
Bid-YTW : 6.26 %
BIP.PR.F FixedReset Disc -1.44 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-01-26
Maturity Price : 20.50
Evaluated at bid price : 20.50
Bid-YTW : 7.24 %
BN.PF.D Perpetual-Discount -1.30 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-01-26
Maturity Price : 19.71
Evaluated at bid price : 19.71
Bid-YTW : 6.30 %
TRP.PR.C FixedReset Disc 1.01 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-01-26
Maturity Price : 12.02
Evaluated at bid price : 12.02
Bid-YTW : 8.29 %
PVS.PR.J SplitShare 1.10 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2028-02-29
Maturity Price : 25.00
Evaluated at bid price : 23.00
Bid-YTW : 6.44 %
IFC.PR.A FixedReset Ins Non 1.16 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-01-26
Maturity Price : 18.39
Evaluated at bid price : 18.39
Bid-YTW : 6.54 %
NA.PR.W FixedReset Disc 1.16 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-01-26
Maturity Price : 17.46
Evaluated at bid price : 17.46
Bid-YTW : 7.26 %
IFC.PR.F Insurance Straight 1.27 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-01-26
Maturity Price : 21.89
Evaluated at bid price : 22.26
Bid-YTW : 6.01 %
MIC.PR.A Perpetual-Discount 1.28 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-01-26
Maturity Price : 19.75
Evaluated at bid price : 19.75
Bid-YTW : 6.93 %
PWF.PR.T FixedReset Disc 1.30 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-01-26
Maturity Price : 18.69
Evaluated at bid price : 18.69
Bid-YTW : 7.12 %
TRP.PR.A FixedReset Disc 1.39 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-01-26
Maturity Price : 14.57
Evaluated at bid price : 14.57
Bid-YTW : 8.19 %
BN.PR.B Floater 1.45 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-01-26
Maturity Price : 13.30
Evaluated at bid price : 13.30
Bid-YTW : 8.97 %
BN.PF.H FixedReset Disc 1.46 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-01-26
Maturity Price : 22.80
Evaluated at bid price : 23.63
Bid-YTW : 7.18 %
CM.PR.P FixedReset Disc 1.64 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-01-26
Maturity Price : 17.94
Evaluated at bid price : 17.94
Bid-YTW : 7.06 %
IFC.PR.C FixedReset Disc 1.65 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-01-26
Maturity Price : 18.50
Evaluated at bid price : 18.50
Bid-YTW : 7.00 %
MFC.PR.Q FixedReset Ins Non 1.70 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-01-26
Maturity Price : 20.34
Evaluated at bid price : 20.34
Bid-YTW : 6.89 %
PVS.PR.K SplitShare 1.80 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2029-05-31
Maturity Price : 25.00
Evaluated at bid price : 22.65
Bid-YTW : 6.43 %
GWO.PR.L Insurance Straight 1.89 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-01-26
Maturity Price : 23.48
Evaluated at bid price : 23.75
Bid-YTW : 6.01 %
BN.PF.F FixedReset Disc 2.47 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-01-26
Maturity Price : 17.42
Evaluated at bid price : 17.42
Bid-YTW : 8.19 %
SLF.PR.H FixedReset Ins Non 2.54 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-01-26
Maturity Price : 16.13
Evaluated at bid price : 16.13
Bid-YTW : 7.24 %
MFC.PR.L FixedReset Ins Non 2.67 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-01-26
Maturity Price : 17.30
Evaluated at bid price : 17.30
Bid-YTW : 7.37 %
CU.PR.F Perpetual-Discount 3.42 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-01-26
Maturity Price : 19.65
Evaluated at bid price : 19.65
Bid-YTW : 5.83 %
TRP.PR.B FixedReset Disc 4.00 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-01-26
Maturity Price : 11.44
Evaluated at bid price : 11.44
Bid-YTW : 8.41 %
BN.PR.N Perpetual-Discount 4.07 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-01-26
Maturity Price : 19.20
Evaluated at bid price : 19.20
Bid-YTW : 6.27 %
BNS.PR.I FixedReset Disc 4.13 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-01-26
Maturity Price : 20.95
Evaluated at bid price : 20.95
Bid-YTW : 6.47 %
BN.PR.M Perpetual-Discount 7.81 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-01-26
Maturity Price : 19.19
Evaluated at bid price : 19.19
Bid-YTW : 6.27 %
Volume Highlights
Issue Index Shares
Traded
Notes
BN.PF.D Perpetual-Discount 40,278 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-01-26
Maturity Price : 19.71
Evaluated at bid price : 19.71
Bid-YTW : 6.30 %
BN.PR.T FixedReset Disc 39,100 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-01-26
Maturity Price : 15.10
Evaluated at bid price : 15.10
Bid-YTW : 8.17 %
MIC.PR.A Perpetual-Discount 26,200 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-01-26
Maturity Price : 19.75
Evaluated at bid price : 19.75
Bid-YTW : 6.93 %
RY.PR.H FixedReset Disc 18,615 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-01-26
Maturity Price : 18.14
Evaluated at bid price : 18.14
Bid-YTW : 7.03 %
BN.PF.C Perpetual-Discount 17,055 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-01-26
Maturity Price : 19.63
Evaluated at bid price : 19.63
Bid-YTW : 6.26 %
MFC.PR.C Insurance Straight 14,758 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-01-26
Maturity Price : 20.18
Evaluated at bid price : 20.18
Bid-YTW : 5.66 %
There were 3 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
BN.PF.A FixedReset Disc Quote: 19.90 – 21.95
Spot Rate : 2.0500
Average : 1.5664

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-01-26
Maturity Price : 19.90
Evaluated at bid price : 19.90
Bid-YTW : 7.46 %

PVS.PR.H SplitShare Quote: 23.55 – 24.75
Spot Rate : 1.2000
Average : 0.7242

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2027-02-28
Maturity Price : 25.00
Evaluated at bid price : 23.55
Bid-YTW : 6.56 %

BMO.PR.W FixedReset Disc Quote: 17.90 – 18.75
Spot Rate : 0.8500
Average : 0.5771

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-01-26
Maturity Price : 17.90
Evaluated at bid price : 17.90
Bid-YTW : 7.17 %

RY.PR.O Perpetual-Discount Quote: 22.94 – 23.76
Spot Rate : 0.8200
Average : 0.5855

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-01-26
Maturity Price : 22.66
Evaluated at bid price : 22.94
Bid-YTW : 5.33 %

TD.PF.K FixedReset Disc Quote: 20.75 – 21.48
Spot Rate : 0.7300
Average : 0.5442

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-01-26
Maturity Price : 20.75
Evaluated at bid price : 20.75
Bid-YTW : 6.72 %

NA.PR.S FixedReset Disc Quote: 18.20 – 19.00
Spot Rate : 0.8000
Average : 0.6296

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-01-26
Maturity Price : 18.20
Evaluated at bid price : 18.20
Bid-YTW : 7.28 %

6 Responses to “January 26, 2023”

  1. Stuart says:

    Chart 1 is excellent! It reinforces my growing belief that the Bank of Canada will eventually raise their inflation rate target to 2-4% as deglobalization forces lead to higher inflation numbers.

  2. skeptical says:

    Bank of Canada will eventually raise their inflation rate target to 2-4% as deglobalization forces lead to higher inflation numbers.
    Why would they raise the target to 2 to 4%? Why not 3 to 5% or 4 to 6%? Or even 7% as in many developing parts of the world?
    Or why have any target at all? Just let it run rampant like in so many other parts of the world.

    They have a mandate to keep inflation below 2%. Inflation stability is one of the reasons our bond markets and by extension property markets, stock markets and everything else in the financial system functions. Even our preferred market is heavily dependent on that premise.

    Once the inflationary expectations are unhinged then the entire foundation of financial system is shaken. It would take enormous effort and much higher interest rates to bring the Jeanie back into the bottle.

    If there’s need, the central banks will push ahead with rate hikes as needed.

    As for deglobalization, what new manufacturing or industrial facilities have been brought back into Canada or Europe and the US since this ‘deglobazliation’ process started? Are we going to see all those New England mills get restarted and perhaps Berkshire Hathaway will go back to its textile roots? Are we going to see Nike setup sweat shops in rural parts of Canada and US?

  3. niagara says:

    The bond markets are certainly optimistic about the BoC (and the Fed for that matter) bringing inflation down to 2% in relatively short order. Markets are already pricing in at least one cut by the BoC this year, and several next year. Inflation is still north of 6%, and while it is trending down, what if bottoms at 3.5 or 4% for several months in the latter half of this year and stays there into next year? Plausible? I think it is. But the market doesn’t. Will the BoC or Fed cut rates with 3.5% to 4% inflation? More likely they continue hiking.

    Not saying that inflation will bottom at 3.5% but perhaps we are heading into a multi-year period of well-above 2% inflation. The rate cuts may be years in the future, not months.

  4. paradon says:

    I think it is very optimistic to believe that inflation will drop below 2% any time soon. Teachers in BC just received a 14% wage hike over 3 years and many other unions have topped that. Add in the various and numerous Government grant and subsidy programs and we are back to too much money chasing after too few goods and services.

    Now having said that, I think that Governments will continue to be very good at finding some macro condition(s) to blame for their policy failures.

  5. stusclues says:

    “If there’s need, the central banks will push ahead with rate hikes as needed.”

    Yes they will. We should be prepared for higher rates to stick around longer than the market currently expects.

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