July 31, 2024

The FOMC Release was no surprise:

Recent indicators suggest that economic activity has continued to expand at a solid pace. Job gains have moderated, and the unemployment rate has moved up but remains low. Inflation has eased over the past year but remains somewhat elevated. In recent months, there has been some further progress toward the Committee’s 2 percent inflation objective.

The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. The Committee judges that the risks to achieving its employment and inflation goals continue to move into better balance. The economic outlook is uncertain, and the Committee is attentive to the risks to both sides of its dual mandate.

In support of its goals, the Committee decided to maintain the target range for the federal funds rate at 5-1/4 to 5-1/2 percent. In considering any adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage‑backed securities. The Committee is strongly committed to returning inflation to its 2 percent objective.

In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals. The Committee’s assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.

Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Thomas I. Barkin; Michael S. Barr; Raphael W. Bostic; Michelle W. Bowman; Lisa D. Cook; Mary C. Daly; Austan D. Goolsbee; Philip N. Jefferson; Adriana D. Kugler; and Christopher J. Waller. Austan D. Goolsbee voted as an alternate member at this meeting.

The press conference was more interesting:

“If we do get the data that we hope, then a reduction in our policy rate could be on the table at the September meeting,” Jerome H. Powell, the Fed chair, said during a news conference on Wednesday. Mr. Powell also suggested that the Fed could make a string of reductions before the end of the year, depending on inflation and job market data.

“I can imagine a scenario in which there would be everywhere from zero cuts to several cuts, depending on the way the economy evolves,” Mr. Powell said. That remark was notable because it implied that three rate cuts were possible, which is in line with market expectations but more than the two the Fed had most recently forecast.

Mr. Powell spoke shortly after the Fed announced that it would hold rates at 5.3 percent for now — a two-decade high, where they have remained for a year.

Five-year Canadas are now at 3.11%.

PerpetualDiscounts now yield 6.30%, equivalent to 8.19% interest at the standard equivalency factor of 1.3x. Long corporates yielded 5.05% on 2024-7-26 and since then the closing price of ZLC has changed from 15.05 to 15.24, an increase of 126bp in price, implying a decrease of yields of 10bp (BMO reports a duration of 12.29, but don’t disclose whether this is Macaulay or Modified; I will assume Modified) to 4.95%. Therefore, the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has narrowed to 325bp from the 335bp reported July 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 0.0847 % 2,254.3
FixedFloater 0.00 % 0.00 % 0 0.00 0 0.0847 % 4,323.7
Floater 9.92 % 10.12 % 89,487 9.41 2 0.0847 % 2,491.8
OpRet 0.00 % 0.00 % 0 0.00 0 0.0204 % 3,527.2
SplitShare 4.74 % 6.53 % 26,438 1.19 6 0.0204 % 4,212.2
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0204 % 3,286.5
Perpetual-Premium 0.00 % 0.00 % 0 0.00 0 -0.3309 % 2,797.4
Perpetual-Discount 6.15 % 6.30 % 61,475 13.48 28 -0.3309 % 3,050.5
FixedReset Disc 5.15 % 6.95 % 127,622 12.46 49 -0.1246 % 2,625.8
Insurance Straight 6.06 % 6.22 % 66,653 13.53 20 0.2536 % 2,987.9
FloatingReset 9.00 % 8.81 % 28,971 10.52 4 -0.1281 % 2,787.4
FixedReset Prem 5.82 % 5.83 % 276,661 11.90 8 0.2875 % 2,536.1
FixedReset Bank Non 0.00 % 0.00 % 0 0.00 0 -0.1246 % 2,684.1
FixedReset Ins Non 5.23 % 6.49 % 101,222 13.30 14 -0.0584 % 2,810.1
Performance Highlights
Issue Index Change Notes
BN.PF.E FixedReset Disc -6.85 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2054-07-31
Maturity Price : 17.00
Evaluated at bid price : 17.00
Bid-YTW : 8.45 %
BN.PF.A FixedReset Disc -5.78 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2054-07-31
Maturity Price : 20.87
Evaluated at bid price : 20.87
Bid-YTW : 7.70 %
PWF.PR.S Perpetual-Discount -3.82 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2054-07-31
Maturity Price : 18.65
Evaluated at bid price : 18.65
Bid-YTW : 6.49 %
CU.PR.C FixedReset Disc -2.13 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2054-07-31
Maturity Price : 19.73
Evaluated at bid price : 19.73
Bid-YTW : 7.18 %
BN.PF.I FixedReset Disc -2.13 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2054-07-31
Maturity Price : 22.19
Evaluated at bid price : 22.56
Bid-YTW : 7.57 %
GWO.PR.Y Insurance Straight -1.80 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2054-07-31
Maturity Price : 17.98
Evaluated at bid price : 17.98
Bid-YTW : 6.35 %
MFC.PR.M FixedReset Ins Non -1.73 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2054-07-31
Maturity Price : 21.35
Evaluated at bid price : 21.62
Bid-YTW : 6.49 %
POW.PR.B Perpetual-Discount -1.34 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2054-07-31
Maturity Price : 21.42
Evaluated at bid price : 21.42
Bid-YTW : 6.31 %
IFC.PR.C FixedReset Ins Non -1.32 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2054-07-31
Maturity Price : 20.23
Evaluated at bid price : 20.23
Bid-YTW : 6.90 %
SLF.PR.H FixedReset Ins Non -1.31 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2054-07-31
Maturity Price : 19.56
Evaluated at bid price : 19.56
Bid-YTW : 6.52 %
BN.PF.C Perpetual-Discount -1.30 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2054-07-31
Maturity Price : 19.05
Evaluated at bid price : 19.05
Bid-YTW : 6.46 %
BN.PF.H FixedReset Disc -1.27 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2054-07-31
Maturity Price : 22.94
Evaluated at bid price : 23.39
Bid-YTW : 7.72 %
MFC.PR.J FixedReset Ins Non -1.11 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2054-07-31
Maturity Price : 22.89
Evaluated at bid price : 24.00
Bid-YTW : 6.22 %
GWO.PR.I Insurance Straight -1.06 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2054-07-31
Maturity Price : 18.60
Evaluated at bid price : 18.60
Bid-YTW : 6.13 %
PWF.PR.G Perpetual-Discount 1.08 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2054-07-31
Maturity Price : 23.20
Evaluated at bid price : 23.50
Bid-YTW : 6.31 %
MFC.PR.K FixedReset Ins Non 1.09 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2054-07-31
Maturity Price : 22.85
Evaluated at bid price : 24.01
Bid-YTW : 5.96 %
SLF.PR.E Insurance Straight 1.23 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2054-07-31
Maturity Price : 19.70
Evaluated at bid price : 19.70
Bid-YTW : 5.79 %
TD.PF.I FixedReset Prem 1.30 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2027-10-31
Maturity Price : 25.00
Evaluated at bid price : 25.70
Bid-YTW : 5.39 %
SLF.PR.D Insurance Straight 1.61 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2054-07-31
Maturity Price : 19.60
Evaluated at bid price : 19.60
Bid-YTW : 5.75 %
BN.PF.F FixedReset Disc 1.66 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2054-07-31
Maturity Price : 20.18
Evaluated at bid price : 20.18
Bid-YTW : 7.63 %
MFC.PR.Q FixedReset Ins Non 1.79 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2054-07-31
Maturity Price : 22.83
Evaluated at bid price : 23.92
Bid-YTW : 6.13 %
BN.PR.Z FixedReset Disc 1.83 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2054-07-31
Maturity Price : 20.59
Evaluated at bid price : 20.59
Bid-YTW : 7.62 %
TD.PF.E FixedReset Disc 2.05 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2054-07-31
Maturity Price : 23.42
Evaluated at bid price : 23.90
Bid-YTW : 6.15 %
IFC.PR.A FixedReset Ins Non 2.45 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2054-07-31
Maturity Price : 18.85
Evaluated at bid price : 18.85
Bid-YTW : 6.64 %
IFC.PR.F Insurance Straight 5.57 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2054-07-31
Maturity Price : 21.80
Evaluated at bid price : 21.80
Bid-YTW : 6.16 %
PWF.PR.P FixedReset Disc 6.18 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2054-07-31
Maturity Price : 14.95
Evaluated at bid price : 14.95
Bid-YTW : 7.60 %
Volume Highlights
Issue Index Shares
Traded
Notes
BMO.PR.T FixedReset Disc 243,465 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2024-09-24
Maturity Price : 25.00
Evaluated at bid price : 24.92
Bid-YTW : 5.17 %
RY.PR.J FixedReset Disc 235,185 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2054-07-31
Maturity Price : 23.29
Evaluated at bid price : 23.91
Bid-YTW : 6.08 %
RY.PR.M FixedReset Disc 114,258 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2054-07-31
Maturity Price : 23.03
Evaluated at bid price : 23.50
Bid-YTW : 5.96 %
GWO.PR.S Insurance Straight 111,143 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2054-07-31
Maturity Price : 21.10
Evaluated at bid price : 21.10
Bid-YTW : 6.31 %
IFC.PR.C FixedReset Ins Non 76,179 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2054-07-31
Maturity Price : 20.23
Evaluated at bid price : 20.23
Bid-YTW : 6.90 %
TD.PF.A FixedReset Disc 71,989 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2054-07-31
Maturity Price : 23.42
Evaluated at bid price : 24.37
Bid-YTW : 5.58 %
There were 85 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
BN.PF.E FixedReset Disc Quote: 17.00 – 18.75
Spot Rate : 1.7500
Average : 1.0894

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2054-07-31
Maturity Price : 17.00
Evaluated at bid price : 17.00
Bid-YTW : 8.45 %

BN.PF.A FixedReset Disc Quote: 20.87 – 22.45
Spot Rate : 1.5800
Average : 0.9603

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2054-07-31
Maturity Price : 20.87
Evaluated at bid price : 20.87
Bid-YTW : 7.70 %

IFC.PR.C FixedReset Ins Non Quote: 20.23 – 21.80
Spot Rate : 1.5700
Average : 1.3093

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2054-07-31
Maturity Price : 20.23
Evaluated at bid price : 20.23
Bid-YTW : 6.90 %

BN.PR.X FixedReset Disc Quote: 16.19 – 17.00
Spot Rate : 0.8100
Average : 0.6224

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2054-07-31
Maturity Price : 16.19
Evaluated at bid price : 16.19
Bid-YTW : 7.76 %

MFC.PR.N FixedReset Ins Non Quote: 22.00 – 22.50
Spot Rate : 0.5000
Average : 0.3299

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2054-07-31
Maturity Price : 21.62
Evaluated at bid price : 22.00
Bid-YTW : 6.26 %

SLF.PR.C Insurance Straight Quote: 19.30 – 19.89
Spot Rate : 0.5900
Average : 0.4230

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2054-07-31
Maturity Price : 19.30
Evaluated at bid price : 19.30
Bid-YTW : 5.84 %

3 Responses to “July 31, 2024”

  1. […] PerpetualDiscounts now yield 6.22%, equivalent to 8.09% interest at the standard equivalency factor of 1.3x. Long corporates yielded 4.91% on 2024-7-31 and since then the closing price of ZLC has changed from 15.24 to 15.21, a decrease of 20bp in price, implying an increase of yields of 2bp (BMO reports a duration of 12.43, but don’t disclose whether this is Macaulay or Modified; I will assume Modified) to 4.93%. Therefore, the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has narrowed to 315bp from the 325bp reported July 31. […]

  2. […] although the spread has narrowed considerably despite a bounce upwards in May; on July 31, I reported median YTWs of 6.95% and 6.30%, respectively, for these two indices; compare with mean […]

  3. […] interest-equivalent PerpetualDiscounts) was 305bp on 2024-08-28, a significant narrowing from the 325bp on 2024-7-31 (chart end-date 2024-8-9). This was, presumably, due to widespread reporting that inflation has […]

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