| Index Changes | |||
| Issue | From | To | Because |
| BC.PR.B | Ratchet | Fixed-Floater | Error Correction |
| BC.PR.E | Scraps | Ratchet | Error Correction |
*sigh*. An error is not a happy thing to admit, but it’s always best to get it over with. As detailed in the post BC.PR.B / BC.PR.E, some of the BC.PR.B fixed/floater issue was exchanged into the BC.PR.E Ratchet Rate issue.
In very good news for preferred share investors, Ontario increased the dividend tax credit from 5.13% to 6.5%. The tax credit will rise in stages over the next four years, reaching 7.7 per cent in 2010.
There is nothing in the Official Press Release that indicates the dollars-and-cents value of this increase, but doubtless the accounting firms are working it out now and I’ll post updates when I get them.
Added 2006-09-06 : Note that Ernst & Young has a very good online tax calculator but it is currently updated only to June 16, 2006
Uploading of the prices for 2006-08-02 will be delayed. At time of writing, 9:45pm EDT, prices were not available from the Toronto Exchange. Assuming system problems are not unduly severe, prices will be uploaded in the morning of 2006-08-03.
And I’m going home.
Update, 2006-08-03, 9:30am EDT The prices have been recovered and the system is ready to go. Disregard the valuation assigned to the BC.PR.C – this is higher than it should be for technical reasons related to the change of terms
The terms of BC.PR.B changed effective 2006-05-01 with the annual dividend declining from $1.3125 to $1.0875. There’s a haircut for you!
Holders had the option to convert to the Ratchet Rate issue, BC.PR.E, and a little bit more than a quarter of the issue was converted. These issues become convertable into each other again on May 1, 2011 (although you may need to contact the company earlier!).
Changes have been put through on HIMIPref to reflect this conversion. Security codes are:
| Issue | Code |
| BC.PR.B (old) | A38003 |
| BC.PR.B (new) | A38006 |
| BC.PR.E | A38007 |
The terms of this issue have changed, effective 2006-08-01, in accordance with the prospectus and the resetting of the coupon.
The coupon rate is now 4.65% until 2011-08-01. HIMIPref assumes that on that date it will become a Ratchet-Rate issue, since the company has discretion as to the fixed rate to which the issue will be reset.
No shares were converted to the Ratchet-Rate preferreds, since the holders of less than 2-million shares wished to exercise that privilege.
The old HIMIPref security code for this issue was A38004; following a “term change” reorganization, the new code is A38005.
| Index | Current Yield (at bid) | YTW | Average Trading Value | Mod Dur (YTW) | Issues | Day’s Perf. | Index Value |
| Ratchet | 4.24% | 4.25% | 91,756 | 16.95 | 2 | N/A | 994.9 |
| Fixed-Floater | 5.23% | 4.10% | 98,940 | 8.30 | 5 | N/A | 1,002.5 |
| Floater | 4.60% | -15.57% | 59,854 | 4.60 | 5 | N/A | 1,003.4 |
| Op. Retract | 4.74% | 3.05% | 78,683 | 2.75 | 18 | N/A | 996.0 |
| SplitShare | 5.02 | 3.64 | 60,673 | 2.81 | 10 | N/A | 1,001.8 |
| Interest Bearing | 6.86% | 5.26% | 65,738 | 2.19 | 7 | N/A | 1,009.8 |
| Perpetual Premium | 5.30% | 4.40% | 124,309 | 3.97 | 41 | N/A | 1,006.0 |
| Perpetual Discount | 4.77% | 4.80% | 401,377 | 15.83 | 13 | N/A | 1,005.5 |
| Index Changes | |||
| Issue | From | To | Because |
| PWF.PR.A | Floater | Scraps | Volume |
| CVF.PR.A | SplitShare | Scraps | Volume |
| MUH.PR.A | SplitShare | Scraps | Volume |
| BNA.PR.B | SplitShare | Scraps | Volume |
| BNA.PR.A | SplitShare | Scraps | Volume |
| NA.PR.L | PerpetualDiscount | PerpetualPremium | Price |
| AL.PR.F | Scraps | Floater | Volume |
| Index | Current Yield (at bid) | YTW | Average Trading Value | Mod Dur (YTW) | Issues | Day’s Perf. | Index Value |
| Ratchet | 4.24% | 4.25% | 91,756 | 16.95 | 2 | -0.3005% | 994.9 |
| Fixed-Floater | 5.23% | 4.10% | 98,940 | 8.30 | 5 | -0.2289% | 1,002.5 |
| Floater | 4.54% | -15.03% | 58,437 | 6.43 | 5 | 0.0000% | 1,003.4 |
| Op. Retract | 4.74% | 3.05% | 78,683 | 2.75 | 18 | 0.0333% | 996.0 |
| Split-Share | 5.17% | 4.00% | 47,359 | 2.77 | 14 | 0.1627% | 1,001.8 |
| Interest Bearing | 6.86% | 5.26% | 65,738 | 2.19 | 7 | 0.0429% | 1,009.8 |
| Perpetual-Premium | 5.31% | 4.39% | 123,668 | 3.86 | 40 | 0.0121% | 1,006.0 |
| Perpetual-Discount | 4.77% | 4.81% | 383,145 | 15.15 | 14 | -0.0314% | 1,005.5 |
| Major Price Changes | |||
| Issue | Index | Change | Notes |
| ACO.PR.A | OpRet | +1.28% | 13,777 shares traded |
| DFN.PR.A | SplitShare | +1.25% | 7,165 shares traded |
| Volume Highlights | |||
| Issue | Index | Volume | Notes |
| HSB.PR.D | PerpetualPremium | 53,000 | |
| SLF.PR.C | PerpetualDiscount | 45,100 | |
| WN.PR.E | PerpetualDiscount | 24,270 | |
| BNS.PR.K | PerpetualPremium | 17,825 | |
| GWO.PR.X | OpRet | 15,192 | |
There were seven other index-included issues with volume in excess of 10,000 shares.
Another yield curve for your edification and amusement!
This one is similar in nature to Operating Retractibles yield curve discussed a few days ago, but does have some unique points of interest.
There’s a lot of scatter – more scatter than there really should be, given that the average volume traded is so much greater than the equivalent number for the constituents of the OpRet index. And, one should note, I didn’t plot a point for RY.PR.S, which has a Modified Duration of the YTW scenario of 0.16 Years, and a YTW of -1.82%.
The CM.PR.C and GWO.PR.F look rather expensive, don’t they? I certainly can’t figure out … the CM.PR.C looked good a little while ago, when they were trading in the neighborhood of $26.50 – I can’t say I’m so impressed with them nowadays, closing 7/31 with a quote of 26.76-87.
But the most strange thing by far about this curve is that, while the lower quality credits look to be at a more or less decent spread to their higher-rated peers at the long end (well … relatively long end, anyway!), they seem to be trading through them at the short end, and not by just a little bit. Which would seem to indicate some opportunity for arbitrage …
What this graph does not, and cannot, convey is the degree of risk implicit in the fact that these are perpetuals … once market prices start to change, the position of each data point on this graph might change substantially – which is why HIMIPref has such concepts as ‘Portfolio Yield’ and ‘Option Doubt’. But as a first approximation, some of the anomalies shown by this plot look pretty juicy, don’t they?
| Index | Current Yield (at bid) | YTW | Average Trading Value | Mod Dur (YTW) | Issues | Day’s Perf. | Index Value |
| Ratchet | 4.21% | 4.22% | 92,290 | 17.01 | 2 | 0.3822% | 997.9 |
| Fixed-Floater | 5.22 | 3.92% | 99,784 | 5.17 | 5 | 0.1523% | 1,004.8 |
| Floater | 4.54% | -15.02% | 59,223 | 6.43 | 5 | 0.1680% | 1,003.4 |
| Op. Retract | 4.74% | 3.19% | 78,823 | 2.76 | 18 | 0.0154% | 995.6 |
| Split-Share | 5.17% | 3.93% | 47,897 | 2.85 | 14 | 0.1909% | 1,000.2 |
| Interest Bearing | 6.86% | 5.15% | 66,114 | 2.19 | 7 | -0.1801% | 1,009.4 |
| Perpetual-Premium | 5.32% | 4.33% | 124,166 | 3.86 | 40 | 0.0947% | 1,005.8 |
| Perpetual-Discount | 4.77% | 4.89% | 388,850 | 15.84 | 14 | 0.0881% | 1,005.8 |
| Major Price Changes | |||
| Issue | Index | Change | Notes |
| MST.PR.A | InterestBearing | -1.43% | 3,832 shares traded. It was up 1.55% yesterday on 6,088 shares … easy come, easy go. |
| TDS.PR.B | SplitShare | +1.91% | 900 shares traded. Somebody didn’t want many shares, but they REALLY wanted them. This issue is callable at 28.10 in November and is now quoted at 28.50-65. YTW is -0.03% |
| Volume Highlights | |||
| Issue | Index | Volume | Notes |
| CM.PR.C | PerpetualPremium | 204,166 | BMO crossed 200,000 @26.84 for delayed delivery. |
| SLF.PR.B | PerpetualPremium | 105,942 | Gained 0.48% on day. |
| GWO.PR.G | PerpetualPremium | 35,570 | Scotia bought 20,000 from CIBC @26.00 |
| RY.PR.B | PerpetualDiscount | 14,000 | Is the “Inventory Reduction Sale” over? |
| MFC.PR.C | PerpetualDiscount | 12,600 | |
| SLF.PR.C | PerpetualDiscount | 10,900 | |
There were no other index-included issues with volume in excess of 10,000 shares.
My more observant readers will have noticed that the “Perpetual” index has been split into “Premium” and “Discount”. With a bi-modal distribution of index characteristics, the averages didn’t make a lot of sense. I don’t really know if this will be a permanent change – I’ll have to see what happens over time, when I get around to writing and testing automated index preparation software. If there aren’t any discount perpetuals in my database, for instance, I’m not sure what I’ll do or how meaningfully I’ll be able to present the results. Stay tuned!
Well, what are we to make of this yield curve?
This yield curve was plotted from the data prepared for the ‘Operating Retractible’ Index on 2006-07-26. The x-axis is modified duration, the y-axis is the pre-tax yield to maturity. Both data elements are obtained from the “YTW Scenario” – i.e., assuming a maturity-date and associate redemption price that reflects the worst-case-scenario (given current conditions) for the shareholder.
Retractible prefs are the class of prefs that behave most like bonds (an assertion I’ll prove at some point in the future, probably in a published article … for now, just trust me!) so one would expect that a yield curve would be a relatively smooth looking thing.
No such luck! BAM.PR.J, with a yield of 4.54% until its presumed redemption in March 2018, well above the curve, while PWF.PR.D seems well below its peers, having a YTW of only 1.87% based on a call at $26.00 in November 2007.
Could it be that the market is pricing the latter issue based on a redemption at $25.00 immediately prior to the retraction date in October 2012? Its yield based on the 2012 call is currently 3.72%, which is much closer to what comparable issues are paying. It is, perhaps, due to this sort of behaviour that HIMIPref finds the concept of portfolio yield useful in preferred share valuation.
The graph shown isn’t definitive, of course. No allowance has been made for credit rating and it is certainly possible to argue that the yield premium available on BAM.PR.J is mere compensation for the risk that its Pfd-2(low) rating from DBRS implies relative to the other labelled data points, which are all Pfd-1(low) – or simply that its extremely long time until its retraction privilege becomes exercisable make the other data points irrelevant for pricing purposes. It is also entirely valid to argue that the market is pricing in higher yields for the future, which will make the earlier redemption of PWF.PR.D less likely.
Arguments, arguments … that’s what makes a market!