TXPR closed at 524.69, up 0.53% on the day. Volume today was 1.02-million, fifth-highest of the past 21 trading days. This didn’t help the month much: the TXPR price index (reported here) is down 4.09% from April 28. The total return index (used for benchmarking) will be somewhat better, but not enough to make May anything other than a bad month.
CPD closed at 10.42, up 0.29% on the day. Volume was 50,340, fifth-highest of the past 21 trading days.
ZPR closed at 8.57, up 0.47% on the day. Volume was 594,180, second-highest of the past 21 trading days and miles ahead of #3.
Five-year Canada yields down to 3.47% today.
So the big news today was economic growth:
The Canadian economy grew at an annualized rate of 3.1 per cent in the first quarter of 2023, Statistics Canada reported Wednesday.
The latest data shows growth beat out the federal agency’s own forecast of 2.5 per cent for the quarter. A preliminary estimate suggests the economy grew by 0.2 per cent in April, after remaining flat in March.
…
The federal agency says growth in exports and household spending helped spur growth in the first quarter.Meanwhile, slower inventory accumulations as well as declines in household investment and business investment in machinery and equipment weighed on growth.
The Canadian economy has managed to continue outperforming expectations, despite the Bank of Canada hoping high interest rates would cause a more profound pullback by consumers and businesses.
The household spending figures show spending up on both goods and services in the first three months of the year, after minimal growth in the previous two quarters.
However, the report notes disposable income fell for the first time since the fourth quarter of 2021. The federal agency says disposable income declined by one per cent, largely due to the expiration of government measures aimed at helping people cope with inflation.
This had an immediate effect on rate forecasts:
Pre-announcement
Post-announcement
Oddly, the GOC-5 was down today to 3.47%, despite yield increases in T-bills out to six months.
And the US job market seems to be holding up:
After three consecutive months of declines, job openings jumped in April, reaching 10.1 million, the Labor Department reported on Wednesday.
The surge signals that job opportunities are withstanding the economic pressures that have led many to believe that the American economy may soon enter a recession.
At the same time, the report — known as JOLTS, or the Job Openings and Labor Turnover Survey — showed that the labor market was far less feverish than it was a year earlier.
The quits rate — viewed as an indicator of how confident workers are in leaving a job and finding employment elsewhere — was 3 percent, seasonally adjusted, in April 2022. Since then, it has retreated to 2.4 percent, just above its prepandemic peak. And the hiring rate was unchanged from March, which was the lowest since December 2020.
Layoffs, however, decreased again, showing that employers are hesitant to let go of employees brought on board during this recovery.
While at the same time:
The House of Representatives is expected to vote in the evening on a bill to lift the $31.4 trillion debt limit, a critical step to avoid a destabilizing default that could come early next week without congressional approval.
House passage would send the bill to the Senate, where debate could stretch to the weekend, just before the June 5 date when the government could start to run out of money.
…
Fed Governor and vice chair nominee Philip Jefferson said skipping a rate hike in two weeks would provide policymakers time to see more data before making a decision. Philadelphia Fed President Patrick Harker also said on Wednesday that for now he is inclined to support a “skip” in rate hikes.
Market timing? You can have it!
Great-West has swallowed the medicine on Putnam:
Canadian insurer Great-West Lifeco Inc. GWO-T -0.62%decrease
is offloading U.S. wealth manager Putnam Investments to investment giant Franklin Templeton in a deal valued at US$1.8-billion, a fraction of what the insurer initially paid for the operation.The two asset managers announced Wednesday that Franklin Templeton will initially pay Great-West Life US$950-million to US$1-billion in a combination of cash and stock. Franklin Templeton will issue 33.33 million shares to Great-West at closing and $100-million in cash six months after closing.
Great-West’s shares will represent a 6.2-per-cent ownership stake in parent Franklin Resources Inc., and it has agreed to hold at least 4.9 per cent of Franklin Resources for at least five years.
…
Great-West Lifeco purchased Putnam for US$3.9-billion in 2007 to expand its U.S presence. The deal also included a US$900-million deferred tax benefit. In 2007, Putnam managed about US$192-billion in assets but struggled with performance and investor redemption in the years following the financial crisis. Now, the company manages about US$170-billion in assets. That includes about $33-billion of assets in Putnam subsidiary PanAgora, a quantitative asset manager that Great-West Lifeco will keep its controlling interest in.
It’s springtime, and in spring a young man’s fancy lightly turns to thoughts of fraud:
A panel of the Ontario Securities Commission has ordered the principals of Paramount Equity Financial Corp., which sold pooled mortgage products until it was shut down in 2017, to pay $47.2-million, after they were found to have defrauded investors.
But one of the defendants, the company’s chief executive, has gone missing, and another defendant is collecting employment insurance, raising questions as to how much of the judgment will be paid.
Paramount and several affiliate companies, which were placed under the control of a receiver at the request of the OSC in 2017, promoted themselves as a vehicle for investing in second mortgages on residential homes. They raised about $78-million from 500 investors for their two funds.
About $50-million was instead directed to higher-risk mortgages for undeveloped land, or the redevelopment of existing buildings. The OSC panel, called the Capital Markets Tribunal, also found in April, 2022, that the principals of Paramount – CEO Marc Ruttenberg, senior vice-president Brad Burdon and director of sales Matthew Laverty – had undisclosed, indirect ownership interests in these riskier development projects.
…
The OSC said it was unable to locate Mr. Ruttenberg when it started its enforcement proceeding, and that the most up-to-date address it had for him is a post-office box in a Toronto UPS store. In its order, the panel said Mr. Ruttenberg did not appear, provide evidence, make submissions or participate in any other way in the proceeding.
… and …
An Ontario builder of so-called “tiny homes” has been charged with fraud and police say 11 victims have now come forward, with more than $800,000 of deposit money unaccounted for.
…
Halton Police Regional Services said on May 3 that Philip Bradley, 58, was arrested and charged with nine counts of fraud over $5,000. He has since been released on bail and is expected back in court on June 19. Since his arrest, more victims have come forward according to Det. Constable Kevin Harvey of the Halton Regional fraud unit.
I mentioned CI Financial on May 11 with an update on May 15. Now, DBRS has weighed in:
DBRS Limited (DBRS Morningstar) changed the trend to Negative from Stable and confirmed the ratings of CI Financial Corp. (CI or the Company) and its principal subsidiary, CI Investments Inc. (CII), including CI’s Senior Unsecured Debentures rating and CII’s Issuer Rating, at BBB.
KEY RATING CONSIDERATIONS
The change in the trend to Negative reflects the deterioration in CI’s credit fundamentals, including weaker earnings, still very high leverage, even with paying down some debt recently, and a lower fixed charge coverage ratio. DBRS Morningstar had previously anticipated that CI would have completed the initial public offering (IPO) of its U.S. wealth management business (CI US) to deleverage, but this was postponed due to market conditions with CI instead agreeing to a pre-IPO investment with a group of global institutional investors (Investors).While the proceeds of the recently closed $1.34 billion pre- IPO investment will help lower debt levels by approximately $1 billion in Q2 2023, and decrease the extraordinarily high debt-to-EBITDA ratio of 7.3 times (x) (as of Q1 2023, per DBRS Morningstar calculations), CI’s leverage will continue to be elevated and its fixed charge ratio low because the Company redeemed mostly its lower-cost debt. In order to retain a majority interest in CI US, the Company will have to grow at a pace that is comparable to the past two years, which would be much more challenging under the current market conditions, and may lead to additional borrowing. Furthermore, the terms of the investment deal stipulate a 14.5% compounding annual return for the Investors that will be materialized at the time of the IPO, within the next six years. The uncertainty with respect to CI’s ultimate ownership in CI US may therefore remain high for some time. As such, DBRS Morningstar does not expect a significant and sustained reduction in debt over the medium term as would have been expected with an IPO.
DBRS is also hosting a webinar that some may find of interest:
Join DBRS Morningstar on Wednesday, June 7, at 10:30 a.m. EDT for a Frontline Perspectives webinar, “The Future of LRCN Issuances in Canada.” Since mid-2020, Canadian insurers and banks have been issuing deeply subordinated capital instruments targeted to institutional investors, which are known as Limited Recourse Capital Notes and Non-Viability Contingent Capital Additional Tier 1 (AT1) Limited Recourse Capital Notes (together, LRCNs). Recent global market developments, including the banking failures in the U.S. and the wipe out of Credit Suisse’s AT1 notes, have adversely affected the market for new issuances.
In this Frontline Perspectives webinar, Nadja Dreff, Senior Vice President, Head of Canadian Insurance, will be joined by Kris Somers, Managing Director, BMO Capital Markets. They will review and discuss the recent LRCN market developments and provide an outlook for LRCN issuances in Canada.
WEBINAR DETAILS:
Date: June 7, 2023
Time: 10:30 a.m. EDT
The New York Fed has updated its Corporate Bond Market Distress Index:
Corporate bond market functioning remained close to historical norms over the month of May, with the end-of-month market-level CMDI above its historical median.
Market functioning in both the high-yield and investment-grade sectors remained roughly flat over the course of the month.
Snippets from the Credit Crunch are still coming out – most recently price-fixing in the UK bond market:
Traders at five major banks colluded in chatrooms to swap sensitive information on UK bonds in the wake of the 2008 financial crisis, Britain’s antitrust agency said in a move that could pave the way for fines for some of the lenders involved.
Citigroup Inc., Deutsche Bank AG, HSBC Holdings Plc, Morgan Stanley and Royal Bank of Canada each unlawfully shared details on pricing and trading strategies in chatrooms between 2009 and 2013, the Competition and Markets Authority said on Wednesday in its provisional findings.
…
Antitrust watchdogs across Europe have taken a closer look at bond market collusion in a series of probes targeting some of the biggest banks in the region. The European Commission issued a formal complaint to Deutsche Bank last year for its alleged role in a cartel linked to euro-denominated bonds.That was the third EU investigation involving cartels affecting the market for bonds trading and comes after the EU spent more than a decade probing how bank traders swapped information in chatrooms.
The UK watchdog has been investigating the allegations since it first opened the probe in November 2018, but has publicly revealed little details about what area of financial services or banks were involved. A separate CMA cartel probe saw 10 construction firms fined £60 million ($74.5 million).
PerpetualDiscounts now yield 6.59%, equivalent to 8.57% interest at the standard equivalency factor of 1.3x. Long corporates yielded 5.23% on 2023-5-26 and since then the closing price has changed from 14.82 to 15.05, an increase of 155bp in price, with a Duration of 12.21 (BMO doesn’t specify whether this is Macaulay or Modified Duration; I will assume Modified) which implies a decrease in yield of about 13bp since 5/26 to 5.10%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has widened dramatically to about 345bp from the 320bp reported May 24.
| 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 | 0.0000 % | 2,124.9 |
| FixedFloater | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.0000 % | 4,075.5 |
| Floater | 10.61 % | 10.88 % | 23,344 | 8.77 | 2 | 0.0000 % | 2,348.7 |
| OpRet | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.1289 % | 3,335.5 |
| SplitShare | 5.04 % | 7.25 % | 40,353 | 2.54 | 7 | -0.1289 % | 3,983.3 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.1289 % | 3,107.9 |
| Perpetual-Premium | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.1793 % | 2,652.3 |
| Perpetual-Discount | 6.43 % | 6.59 % | 41,723 | 13.04 | 34 | 0.1793 % | 2,892.2 |
| FixedReset Disc | 6.05 % | 8.64 % | 84,564 | 11.07 | 63 | 0.4097 % | 2,060.0 |
| Insurance Straight | 6.43 % | 6.45 % | 60,143 | 13.36 | 19 | -0.2203 % | 2,799.1 |
| FloatingReset | 11.28 % | 11.71 % | 47,255 | 8.43 | 2 | -0.3515 % | 2,301.0 |
| FixedReset Prem | 6.98 % | 7.00 % | 313,321 | 3.79 | 1 | 0.0398 % | 2,314.6 |
| FixedReset Bank Non | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.4097 % | 2,105.8 |
| FixedReset Ins Non | 6.15 % | 7.70 % | 85,754 | 11.63 | 11 | 0.2179 % | 2,269.0 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| SLF.PR.C | Insurance Straight | -7.34 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-31 Maturity Price : 17.05 Evaluated at bid price : 17.05 Bid-YTW : 6.54 % |
| PVS.PR.K | SplitShare | -2.09 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2029-05-31 Maturity Price : 25.00 Evaluated at bid price : 21.55 Bid-YTW : 7.36 % |
| RY.PR.N | Perpetual-Discount | -1.66 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-31 Maturity Price : 20.75 Evaluated at bid price : 20.75 Bid-YTW : 5.95 % |
| BN.PF.D | Perpetual-Discount | -1.13 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-31 Maturity Price : 17.50 Evaluated at bid price : 17.50 Bid-YTW : 7.16 % |
| PWF.PR.O | Perpetual-Discount | -1.12 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-31 Maturity Price : 21.75 Evaluated at bid price : 22.00 Bid-YTW : 6.68 % |
| BN.PR.T | FixedReset Disc | -1.00 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-31 Maturity Price : 12.85 Evaluated at bid price : 12.85 Bid-YTW : 10.48 % |
| FTS.PR.F | Perpetual-Discount | 1.00 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-31 Maturity Price : 20.20 Evaluated at bid price : 20.20 Bid-YTW : 6.11 % |
| GWO.PR.P | Insurance Straight | 1.01 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-31 Maturity Price : 20.10 Evaluated at bid price : 20.10 Bid-YTW : 6.73 % |
| MFC.PR.M | FixedReset Ins Non | 1.02 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-31 Maturity Price : 15.77 Evaluated at bid price : 15.77 Bid-YTW : 9.12 % |
| TRP.PR.D | FixedReset Disc | 1.04 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-31 Maturity Price : 14.60 Evaluated at bid price : 14.60 Bid-YTW : 10.20 % |
| CU.PR.J | Perpetual-Discount | 1.07 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-31 Maturity Price : 18.90 Evaluated at bid price : 18.90 Bid-YTW : 6.33 % |
| BN.PF.A | FixedReset Disc | 1.10 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-31 Maturity Price : 17.50 Evaluated at bid price : 17.50 Bid-YTW : 9.51 % |
| TD.PF.C | FixedReset Disc | 1.11 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-31 Maturity Price : 16.33 Evaluated at bid price : 16.33 Bid-YTW : 8.67 % |
| PVS.PR.J | SplitShare | 1.14 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2028-02-29 Maturity Price : 25.00 Evaluated at bid price : 22.15 Bid-YTW : 7.30 % |
| NA.PR.G | FixedReset Disc | 1.18 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-31 Maturity Price : 21.50 Evaluated at bid price : 21.50 Bid-YTW : 7.48 % |
| POW.PR.C | Perpetual-Discount | 1.19 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-31 Maturity Price : 22.63 Evaluated at bid price : 22.88 Bid-YTW : 6.44 % |
| BIP.PR.E | FixedReset Disc | 1.22 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-31 Maturity Price : 20.80 Evaluated at bid price : 20.80 Bid-YTW : 7.98 % |
| MFC.PR.N | FixedReset Ins Non | 1.32 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-31 Maturity Price : 15.40 Evaluated at bid price : 15.40 Bid-YTW : 9.16 % |
| CM.PR.O | FixedReset Disc | 1.35 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-31 Maturity Price : 16.48 Evaluated at bid price : 16.48 Bid-YTW : 8.79 % |
| GWO.PR.S | Insurance Straight | 1.46 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-31 Maturity Price : 20.20 Evaluated at bid price : 20.20 Bid-YTW : 6.51 % |
| PWF.PR.P | FixedReset Disc | 1.72 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-31 Maturity Price : 11.80 Evaluated at bid price : 11.80 Bid-YTW : 9.58 % |
| BN.PF.G | FixedReset Disc | 1.79 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-31 Maturity Price : 14.25 Evaluated at bid price : 14.25 Bid-YTW : 10.54 % |
| GWO.PR.M | Insurance Straight | 1.83 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-31 Maturity Price : 22.07 Evaluated at bid price : 22.30 Bid-YTW : 6.50 % |
| BN.PF.F | FixedReset Disc | 2.31 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-31 Maturity Price : 15.50 Evaluated at bid price : 15.50 Bid-YTW : 10.25 % |
| IFC.PR.C | FixedReset Disc | 2.48 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-31 Maturity Price : 16.50 Evaluated at bid price : 16.50 Bid-YTW : 8.60 % |
| BIP.PR.F | FixedReset Disc | 3.28 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-31 Maturity Price : 18.60 Evaluated at bid price : 18.60 Bid-YTW : 8.71 % |
| PWF.PR.G | Perpetual-Discount | 5.47 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-31 Maturity Price : 22.49 Evaluated at bid price : 22.75 Bid-YTW : 6.57 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| RY.PR.Z | FixedReset Disc | 53,734 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-31 Maturity Price : 16.60 Evaluated at bid price : 16.60 Bid-YTW : 8.66 % |
| MFC.PR.N | FixedReset Ins Non | 52,685 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-31 Maturity Price : 15.40 Evaluated at bid price : 15.40 Bid-YTW : 9.16 % |
| BMO.PR.E | FixedReset Disc | 45,925 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-31 Maturity Price : 20.30 Evaluated at bid price : 20.30 Bid-YTW : 7.79 % |
| TD.PF.B | FixedReset Disc | 36,944 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-31 Maturity Price : 16.60 Evaluated at bid price : 16.60 Bid-YTW : 8.65 % |
| FTS.PR.M | FixedReset Disc | 28,462 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-31 Maturity Price : 16.06 Evaluated at bid price : 16.06 Bid-YTW : 9.19 % |
| GWO.PR.T | Insurance Straight | 22,324 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-31 Maturity Price : 20.00 Evaluated at bid price : 20.00 Bid-YTW : 6.45 % |
| There were 11 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| TD.PF.C | FixedReset Disc | Quote: 16.33 – 17.77 Spot Rate : 1.4400 Average : 0.8325 YTW SCENARIO |
| SLF.PR.C | Insurance Straight | Quote: 17.05 – 18.40 Spot Rate : 1.3500 Average : 0.9277 YTW SCENARIO |
| BIK.PR.A | FixedReset Disc | Quote: 23.00 – 23.75 Spot Rate : 0.7500 Average : 0.4764 YTW SCENARIO |
| MFC.PR.L | FixedReset Ins Non | Quote: 15.51 – 16.35 Spot Rate : 0.8400 Average : 0.5932 YTW SCENARIO |
| NA.PR.W | FixedReset Disc | Quote: 16.05 – 16.79 Spot Rate : 0.7400 Average : 0.5102 YTW SCENARIO |
| PVS.PR.H | SplitShare | Quote: 22.95 – 23.60 Spot Rate : 0.6500 Average : 0.4561 YTW SCENARIO |
[…] Spread (between long-term corporate bonds and interest-equivalent PerpetualDiscounts) was 345bp as of 2023-5-31 (chart end-date 2023-5-12) […]
[…] PerpetualDiscounts now yield 6.55%, equivalent to 8.52% interest at the standard equivalency factor of 1.3x. Long corporates yielded 5.23% on 2023-5-26 and since then the closing price has changed from 14.82 to 14.78, a decrease of 27bp in price, with a Duration of 12.21 (BMO doesn’t specify whether this is Macaulay or Modified Duration; I will assume Modified) which implies an increase in yield of about 2bp since 5/26 to 5.25%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has narrowed sharply to about 325bp from the 345bp reported May 31. […]