6 Responses to “December 6, 2023”

1. newbiepref says:

   December 7, 2023 at 2:40 am

   Floaters and rachets took a dive yesterday especially that continued today. I have to admit that I don’t get why. Anyone has any cues?

2. jambr403 says:

   December 7, 2023 at 2:14 pm

   Can someone help me understand the data in these tables?

   For example this is the first entry in the first table:

   TD.PF.A FixedReset Disc -3.92 %
   YTW SCENARIO
   Maturity Type : Limit Maturity
   Maturity Date : 2053-12-06
   Maturity Price : 18.40
   Evaluated at bid price : 18.40
   Bid-YTW : 7.89 %

   TD.PF.A is currently trading at $19.02, currently is paying $0.9156 yearly good for a current yield of 4.81%. It resets on 2024-10-31 at GOC 5YR + 2.24 spread. At current GOC 5YR the new divy is $1.4087 for a 7.4% yield.

   None of the numbers in the table reflect this ^^.

   Can someone explain this to me like I’m a 6 year old 🙂 Thanks!

3. RAV4guy says:

   December 7, 2023 at 7:36 pm

   jambr403, I can offer this explanation:

   $18.40 was the end of day bid reported on Dec. 6.
   -3.92% was the change in that number from the previous day.

   Mr. Hymas works out the YTW-bid based on the $18.40 bid price.
   His calculator evaluates the the series of cash flows for 30 years assuming the GOC 5YR stays constant at the current rate and your purchase price of $18.40 is returned to you in 2053. There are assumptions to this evaluation method which he clearly states. He is consistent in evaluating the preferred share market with these assumptions.

   It is a way to compare issues with a long term perspective. As Mr. Hymas states the present value of a perpetual issue comes from the long term income it will generate. It makes little sense just to compare the current dividend with the current price.

   One problem with this is that at the end of the day the bid price is sometimes nonsensical and the issue cannot be bought for that price. For TD.PF.A the last trade on Dec. 6 was at $19.02 which is a wider spread. Dec. 7 it closed at $18.53, closer, but still not $18.40.

4. jiHymas says:

   December 7, 2023 at 9:03 pm

   RAV4guy is correct: I use the bid-ask quote for pricing purposes. There are problems with this: see TMX DataLinx: “Last” != “Close” and the follow-up posts listed at the bottom of that post for more details. Today’s Big Joke Quote from the TSE is PPL.PR.G, 7.50-17.65 (sic; a spread of $10.15), data provided to me at great expense. However, these are still superior to using the last traded price as an indicator for comparison purposes – and comparison is what my software’s all about!

   currently is paying $0.9156 yearly good for a current yield of 4.81%. It resets on 2024-10-31 at GOC 5YR + 2.24 spread. At current GOC 5YR the new divy is $1.4087 for a 7.4% yield.

   Using two different Current Yields to characterize yield is analytically suspect, as well as not being particularly useful for comparing issues.

   Consider an issue paying $1.00 p.a. now and expected to pay $2.00 p.a. after its next reset. If you use the current price as the denominator for your post-reset ‘yield’ you are saying the price won’t change in between then and now; you are claiming that the ‘yield’ is going to magically double on that blessed future day.

   No. Rationally, what should happen is that investors will, in effect, look at the issue as the sum of two components: the first pays $2.00 p.a. now and forever; the second is a discounting of $0.25 from every quarterly dividend until reset. The current price is the sum of the present values of the first component (positive) and the present value of the second component (negative). When looked at this way, it is easier to visualize the current price approaching the value of the first component over time, amortizing the second component to zero as the lower ($1.00 p.a.) dividends are paid.

   I have made available a calculator for FixedReset yields, that expresses the yield as a single number. See ytc_resets.xlsx : Slight Modification, Yield Calculator for Resets and What Is The Yield Of HSE.PR.A? for more information.

   There are some differences between yields reported by HIMIPref™ and by the calculator, but they are small and I do not consider them significant.

   At current GOC 5YR

   I update the software’s database of GOC-5 yields weekly, usually on Mondays but on the Friday prior to a PrefLetter Weekend (e.g., tomorrow). I will also update the database if the actual rate is 20bp or more different from the database rate (when I check it, which is around noon on each trading day), which has happened alarmingly often this year.

   Differences of less than 20bp don’t make a lot of difference in relative valuations of the issues in the universe, which is the really important thing. A proper specification of what ‘yield’ means will include a description of what the assumptions are for GOC-5 anyway, so I don’t see that it makes much difference. The HIMIPref™ rate for the period 2023-12-3 to 2023-12-7, inclusive, is 3.60%. This figure was obtained Monday, around noon.

   at the end of the day the bid price is sometimes nonsensical and the issue cannot be bought for that price.

   For buying the issue, I would use the ask price, which was 19.16 at the “close” December 6, according to the Toronto Exchange.

5. jambr403 says:

   December 10, 2023 at 12:21 pm

   Thanks for the explanations RAV4guy and jiHymas! Makes sense what you both have explained.

6. December 13, 2023 « PrefBlog says:

   December 13, 2023 at 10:47 pm

   […] PerpetualDiscounts now yield 7.10%, equivalent to 9.21% interest at the standard equivalency factor of 1.3x. Long corporates yielded 5.03% on 2023-12-8 and since then the closing price has changed from 15.18 to 15.43, an increase of 165bp in price, with a Duration (BMO doesn’t specify Modified or Macaulay – I will assume the former) of 12.41 implying a decrease of 13bp in yield to 4.90%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has widened to 430bp from the 400bp reported December 6. […]