March 18, 2009

AIG bonuses are all over the news; I haven’t commented on them (specifically) due to the total absence of facts. But some people like to talk about it. Econbrowser‘s James Hamilton labels them “outrageous” and “one of the very factors that caused our current problems” without, as far as I can tell, having any more idea about what is going on than I do.

I have no idea what the functions of these exectuives are, what decisions they made, and how much responsibility they should take for decisions made by their boss’ boss’ boss.

There’s a bit more news today:

The head of battered insurance giant AIG told Congress on Wednesday that “we’ve heard the American people loudly and clearly” in their rage over executive bonuses and appealed to employees to voluntarily return at least half of the money.

Voluntarily, eh?

This is a very simple problem to solve, if you feel the game is worth the candle (Matthew, 16:26). All you need to do is threaten each executive with an army of accountants and lawyers, going over everything they’ve ever done in the course of their employment looking for an undotted “i” or an uncrossed “t”. Anything that’s found becomes fodder for just-cause dismissal, lawsuits, regulatory action and/or criminal charges.

Easy. All it takes is a total absence of business ethics.

Another day of solid across-the-board gains, on decent volume. PerpetualDiscounts now yield 7.41%, equivalent to 10.37% interest at the standard equivalency factor of 1.4x. Long Corporates still yield 7.5% (bor-ring!) so the pre-tax interest-equivalent spread has come in a bit to a “mere” 287bp.

Also of interest was the fact that Five-Year Canadas came in 18bp today and now yield 1.55%; this is presumably an arbitrage-thing against Treasuries on the back of the Fed quantitative easing. And rate resets went up anyway. I guess investors are discounting the current turmoil as transient … or something.

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 1.1202 % 816.3
FixedFloater 0.00 % 0.00 % 0 0.00 0 1.1202 % 1,320.1
Floater 4.85 % 5.97 % 57,879 13.97 3 1.1202 % 1,019.8
OpRet 5.26 % 4.88 % 129,652 3.90 15 0.4829 % 2,057.4
SplitShare 6.90 % 9.73 % 53,468 4.80 6 0.6213 % 1,609.9
Interest-Bearing 6.18 % 11.44 % 33,870 0.75 1 -0.5123 % 1,900.3
Perpetual-Premium 0.00 % 0.00 % 0 0.00 0 0.2868 % 1,485.7
Perpetual-Discount 7.27 % 7.41 % 154,510 12.04 71 0.2868 % 1,368.3
FixedReset 6.17 % 5.84 % 618,569 13.74 30 0.2139 % 1,792.8
Performance Highlights
Issue Index Change Notes
SBN.PR.A SplitShare -2.06 % Asset coverage of 1.6-:1 as of March 12 according to Mulvihill.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2014-12-01
Maturity Price : 10.00
Evaluated at bid price : 8.10
Bid-YTW : 9.73 %
POW.PR.B Perpetual-Discount -2.04 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-18
Maturity Price : 17.30
Evaluated at bid price : 17.30
Bid-YTW : 7.92 %
HSB.PR.C Perpetual-Discount -1.76 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-18
Maturity Price : 17.30
Evaluated at bid price : 17.30
Bid-YTW : 7.41 %
CU.PR.A Perpetual-Discount -1.52 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-18
Maturity Price : 20.80
Evaluated at bid price : 20.80
Bid-YTW : 7.06 %
PWF.PR.F Perpetual-Discount -1.44 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-18
Maturity Price : 17.06
Evaluated at bid price : 17.06
Bid-YTW : 7.85 %
BNS.PR.O Perpetual-Discount -1.41 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-18
Maturity Price : 20.95
Evaluated at bid price : 20.95
Bid-YTW : 6.81 %
SLF.PR.D Perpetual-Discount -1.27 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-18
Maturity Price : 14.03
Evaluated at bid price : 14.03
Bid-YTW : 7.98 %
RY.PR.I FixedReset -1.23 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-18
Maturity Price : 22.47
Evaluated at bid price : 22.51
Bid-YTW : 4.45 %
BMO.PR.J Perpetual-Discount -1.09 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-18
Maturity Price : 16.27
Evaluated at bid price : 16.27
Bid-YTW : 7.01 %
MFC.PR.A OpRet -1.02 % YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2015-12-18
Maturity Price : 25.00
Evaluated at bid price : 24.26
Bid-YTW : 4.64 %
RY.PR.C Perpetual-Discount 1.07 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-18
Maturity Price : 17.03
Evaluated at bid price : 17.03
Bid-YTW : 6.85 %
RY.PR.A Perpetual-Discount 1.09 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-18
Maturity Price : 16.72
Evaluated at bid price : 16.72
Bid-YTW : 6.75 %
BNA.PR.A SplitShare 1.10 % Asset coverage of 1.7-:1 as of February 28 according to the company.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2010-09-30
Maturity Price : 25.00
Evaluated at bid price : 23.05
Bid-YTW : 12.19 %
TD.PR.O Perpetual-Discount 1.10 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-18
Maturity Price : 18.37
Evaluated at bid price : 18.37
Bid-YTW : 6.72 %
BMO.PR.H Perpetual-Discount 1.20 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-18
Maturity Price : 20.25
Evaluated at bid price : 20.25
Bid-YTW : 6.63 %
PWF.PR.G Perpetual-Discount 1.28 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-18
Maturity Price : 19.00
Evaluated at bid price : 19.00
Bid-YTW : 7.93 %
SLF.PR.C Perpetual-Discount 1.29 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-18
Maturity Price : 14.11
Evaluated at bid price : 14.11
Bid-YTW : 7.94 %
SLF.PR.E Perpetual-Discount 1.50 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-18
Maturity Price : 14.21
Evaluated at bid price : 14.21
Bid-YTW : 7.97 %
BAM.PR.H OpRet 1.52 % YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2012-03-30
Maturity Price : 25.00
Evaluated at bid price : 23.35
Bid-YTW : 8.23 %
BAM.PR.O OpRet 1.72 % YTW SCENARIO
Maturity Type : Option Certainty
Maturity Date : 2013-06-30
Maturity Price : 25.00
Evaluated at bid price : 20.75
Bid-YTW : 9.98 %
DFN.PR.A SplitShare 1.73 % Asset coverage of 1.5+:1 as of March 13 according to the company.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2014-12-01
Maturity Price : 10.00
Evaluated at bid price : 8.25
Bid-YTW : 9.41 %
PWF.PR.I Perpetual-Discount 1.74 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-18
Maturity Price : 19.90
Evaluated at bid price : 19.90
Bid-YTW : 7.69 %
SLF.PR.A Perpetual-Discount 1.78 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-18
Maturity Price : 14.86
Evaluated at bid price : 14.86
Bid-YTW : 8.04 %
CM.PR.E Perpetual-Discount 1.78 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-18
Maturity Price : 18.86
Evaluated at bid price : 18.86
Bid-YTW : 7.58 %
CM.PR.G Perpetual-Discount 1.78 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-18
Maturity Price : 18.25
Evaluated at bid price : 18.25
Bid-YTW : 7.55 %
PWF.PR.J OpRet 1.83 % YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2013-07-30
Maturity Price : 25.00
Evaluated at bid price : 25.00
Bid-YTW : 4.88 %
CM.PR.D Perpetual-Discount 2.11 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-18
Maturity Price : 19.81
Evaluated at bid price : 19.81
Bid-YTW : 7.40 %
SLF.PR.B Perpetual-Discount 2.20 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-18
Maturity Price : 15.31
Evaluated at bid price : 15.31
Bid-YTW : 7.89 %
TD.PR.C FixedReset 2.27 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-18
Maturity Price : 24.29
Evaluated at bid price : 24.34
Bid-YTW : 4.93 %
BAM.PR.J OpRet 2.58 % YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2018-03-30
Maturity Price : 25.00
Evaluated at bid price : 17.86
Bid-YTW : 10.38 %
GWO.PR.H Perpetual-Discount 2.60 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-18
Maturity Price : 15.39
Evaluated at bid price : 15.39
Bid-YTW : 7.93 %
MFC.PR.C Perpetual-Discount 2.75 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-18
Maturity Price : 14.93
Evaluated at bid price : 14.93
Bid-YTW : 7.60 %
BAM.PR.B Floater 3.09 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-18
Maturity Price : 7.35
Evaluated at bid price : 7.35
Bid-YTW : 5.97 %
GWO.PR.J FixedReset 3.18 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-18
Maturity Price : 23.95
Evaluated at bid price : 23.99
Bid-YTW : 5.32 %
LFE.PR.A SplitShare 3.65 % Asset coverage of 1.1-:1 as of March 13 according to the company.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2012-12-01
Maturity Price : 10.00
Evaluated at bid price : 7.10
Bid-YTW : 16.16 %
GWO.PR.I Perpetual-Discount 4.50 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-18
Maturity Price : 14.63
Evaluated at bid price : 14.63
Bid-YTW : 7.74 %
Volume Highlights
Issue Index Shares
Traded
Notes
TD.PR.E FixedReset 128,070 TD crossed 100,000 at 25.60.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-05-30
Maturity Price : 25.00
Evaluated at bid price : 25.56
Bid-YTW : 6.03 %
TD.PR.I FixedReset 88,075 Recent new issue.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-18
Maturity Price : 25.00
Evaluated at bid price : 25.05
Bid-YTW : 6.01 %
BNS.PR.L Perpetual-Discount 67,496 Nesbitt crossed 54,000 at 16.81.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-18
Maturity Price : 16.81
Evaluated at bid price : 16.81
Bid-YTW : 6.82 %
RY.PR.T FixedReset 61,433 Recent new issue.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-18
Maturity Price : 23.16
Evaluated at bid price : 25.08
Bid-YTW : 5.84 %
MFC.PR.D FixedReset 54,134 Recent new issue.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-18
Maturity Price : 24.11
Evaluated at bid price : 24.15
Bid-YTW : 6.65 %
BNS.PR.T FixedReset 48,850 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-18
Maturity Price : 25.12
Evaluated at bid price : 25.17
Bid-YTW : 6.02 %
There were 28 other index-included issues trading in excess of 10,000 shares.

3 Responses to “March 18, 2009”

  1. prefhound says:

    May I be baffled at the relative prices/yields of the two Yellow Pages Prefs?:

    YPG.PR.A closing $19.80; Dividend $1.0625; Retractible Dec 31, 2012 for a YTM = 11.1%.

    YPG.PR.B closing $11.75; Dividend $1.25; Retractible Jun 30, 2017 for a YTM = 17.1%

    We are used to flaky pref prices when the lower priced issue has a smaller dividend, but here the Pref A has a lower dividend and lower current yield than the Pref B (5.4 vs 10.7%) — and that is before its lower capital gains potential!

    If it is a yield curve difference (due to the extra 4.5 years for the pref B), then YPG.PR.B yields 11.1% through Dec 31, 2012 and 26.5% for the period 2013-retraction. Should we conclude that the company will be fine for 3 years and then fall apart in the subsequent five?

    BAM and BPO retractible prefs of different maturity dates often have very similar yields to maturity, but not YPG. The YPG.PR.B yield is often more than PR.A, but the current 6 points seems absurd. If both Pref A and Pref B had the same yields to retraction, the Pref B should be $16.82 — more than 40% higher!

    I smell arbitrage potential here, but am not sure how long it would take to sort out. Do you have any special insight into this pair?

  2. jiHymas says:

    I think it all comes down to mortgages.

    There is a very real preferred habitat amongst retail investors for short-term bonds, which are usually defined as bonds with five years or less to maturity, which just happens to be the term of most Canadian mortgages.

    When you add in the fact that the number of watchers is reduced dramatically by the Pfd-3(high) rating, I think you have an explanation.

    You are quite right that BPO retractibles all yield in the same ballpark – but that ballpark is the “penalty yield” ballpark … it is, perhaps, best thought of as a company that is not getting the benefit of the five-year cliff.

    And BAM’s just plain wierd.

    I suspect that any rationalization of the YPG.PR.B yield will have to wait until 2011-12, when retail will start thinking of it as something with a maturity instead of one of them never get yer money back things.

    As I have previously disclosed, the fund holds a position in YPG.PR.B, taken as an optimization trade after the downgrade of BCE.PR.I made me uncomfortable with the fund’s weighting in that name. It’s a relatively small position, with a portfolio weight within the bounds I consider prudent. Barring an increase in credit concern, I’ll hold the damn thing to maturity at a yield of 17+%!

  3. […] Reader prefhound commented: May I be baffled at the relative prices/yields of the two Yellow Pages […]

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