Market Action

November 9, 2006

Note that these indices are experimental; the absolute and relative daily values are expected to change in the final version
Index Mean Current Yield (at bid) Mean YTW Mean Average Trading Value Mean Mod Dur (YTW) Issues Day’s Perf. Index Value
Ratchet 4.14% 4.08% 35,174 10.59 2 0.2612% 1,018.9
Fixed-Floater 4.82% 3.98% 131,337 15.27 7 +0.6388% 1,027.6
Floater 4.51% -19.47% 67,819 6.52 5 -0.0711% 1,027.3
Op. Retract 4.66% 0.73% 80,953 2.28 18 -0.0132% 1,026.5
Split-Share 5.01% 3.51% 172,327 3.51 9 0.1017% 1,027.7
Interest Bearing 6.90% 4.93% 61,925 1.93 7 +0.2434% 1,021.7
Perpetual-Premium 5.07% 3.91% 240,929 3.91 49 +0.0461% 1,043.4
Perpetual-Discount 4.58% 4.62% 581,675 16.15 7 +0.1101% 1,036.0
Major Price Changes
Issue Index Change Notes
BSD.PR.A InterestBearing +1.0194% Continues to recover from the November 7 plunge, closing at $9.91-99, 3×3
BCE.PR.Z FixedFloater +2.9857% Recovers most of the ground lost yesterday, closing at $25.18-25, 5×10 on volume of 2,690 shares. The low for the day was $25.10.
Volume Highlights
Issue Index Volume Notes
PWF.PR.F PerpetualPremium 207,380 Nesbitt crossed 200,000 at 25.90 just before 10am, leading one to suspect that these were the same 200,000 shares as they crossed yesterday.
MFC.PR.C PerpetualDiscount 75,800 Don’t let its index assignment fool you! These closed today at 25.05-09, 19×10, but aren’t as close to inclusion in PerpetualPremium as you might think. YTW is 4.54% based on a limitMaturity, 2036-11-09. “Huh?” you inquire? These things are full of dividend, having a record date of November 15, and therefore go ex-dividend tomorrow (Rememberance Day).
BAM.PR.K Floater 50,000 On one trade, a cross by Scotia at $24.55.
SLF.PR.D PerpetualDiscount 46,515 Up a bit today. Volume continues to be heavy after the clearance sale.
HSB.PR.D PerpetualPremium 45,800 National crossed 37,100 at 26.65; they closed at $26.64-78, 3×9. YTW is 4.16% based on a call 2015-1-30, which seems pretty skimpy.

There were nine other index-included issues trading over 10,000 shares today.

HIMI Preferred Indices

HIMI Preferred Indices : December, 1994

All indices were assigned a value of 1000.0 as of December 31, 1993.

HIMI Index Values 1994-12-30
Index Closing Value (Total Return) Issues Mean Credit Quality Median YTW Median DTW Median Daily Trading Mean Current Yield
Ratchet 1,106.9 0 0 0 0 0 0
FixedFloater 1,106.9 0 0 0 0 0 0
Floater 1,044.5 4 1.45 6.33% 13.4 97M 7.55%
OpRet 975.3 20 1.29 7.19% 5.2 71M 7.35%
SplitShare 975.3 0 0 0 0 0 0
Interest-Bearing 975.3 0 0 0 0 0 0
Perpetual-Premium 1,028.1 5 1.19 6.84% 3.9 53M 8.32%
Perpetual-Discount 1,011.2 1 1.00 7.46% 11.9 39M 7.34%

Index Constitution, 1994-12-30, Pre-Rebalancing

Index Constitution, 1994-12-30, Post-Rebalancing

New Issues

Brookfield Asset New Issue : Perp, 4.75%

I have been advised that there is a new issue contemplated: Brookfield Asset Management, 4.75%, Perpetual.

8-million shares at $25.00 : $200-million issue.

Closing Nov. 20, 2006

Options:

  • Redemption      2012-01-31      2013-01-30  26.000000
  • Redemption      2013-01-31      2014-01-30  25.750000
  • Redemption      2014-01-31      2015-01-30  25.500000
  • Redemption      2015-01-31      2016-01-30  25.250000
  • Redemption      2016-01-31   INFINITE DATE  25.000000

Initial reaction:

More or less fairly priced, if it stays highly liquid. Compare it with the WN.PR.E, which has the same coupon and credit rating; the call schedule commences 6 months earlier; and it closed last night at $24.98-04.

Comparison using “Taxable Curve”
Component of Curve Price BAM.PR.? WN.PR.E
Price due to base-rate 24.03 24.14
Price due to short-term 0.09 0.09
Price due to long-term 0.46 0.49
Price to to Cumulative Dividends 0.05 0.05
Price due to Credit Spread (2) -0.48 -0.52
Price due to Credit Spread (Low) -0.48 -0.52
Price due to error 0.00 0.06
Intrinsic Value 23.67 23.79
Price due to Liquidity 1.49? 1.49
Curve Price 25.16 25.28

Market Action

November 8, 2006

Note that these indices are experimental; the absolute and relative daily values are expected to change in the final version
Index Mean Current Yield (at bid) Mean YTW Mean Average Trading Value Mean Mod Dur (YTW) Issues Day’s Perf. Index Value
Ratchet 4.15% 4.09% 35,862 10.58 2 -0.1001% 1,016.2
Fixed-Floater 4.85% 4.03% 134,147 16.96 7 -0.6917% 1,021.0
Floater 4.51% -19.81% 66,942 6.52 5 -0.1258% 1,028.0
Op. Retract 4.66% 0.81% 81,840 2.28 18 0.0150% 1,026.6
Split-Share 5.01% 3.54% 174,440 3.54 9 0.0878% 1,026.6
Interest Bearing 6.92% 5.03% 61,985 1.92 7 +0.2520% 1,019.2
Perpetual-Premium 5.07% 3.92% 243,551 3.92 49 +0.0430% 1,042.9
Perpetual-Discount 4.59% 4.63% 584,513 16.14 7 +0.0871% 1,034.8
Major Price Changes
Issue Index Change Notes
BCE.PR.Z FixedFloater -3.7780% Closed at $24.45-13, 13×7. A few shares actually traded as low as $23.72; total volume was 5,681 shares, a little above average for this issue but not remarkably so. I guess a few investors have decided that the offer at $25.75 just ain’t gonna happen!
BCE.PR.R FixedFloater -1.1346% Closed at $25.27-55, 7×3 on highish-but-not-extremely-so volume of 6,300 shares. Just as above: maybe retail now figures that offer at $26.05 just ain’t gonna happen!
Volume Highlights
Issue Index Volume Notes
PWF.PR.F PerpetualPremium 206,220 Nesbitt crossed 200,000 at $25.90. At the closing bid of $25.87, this issue has a pre-tax YTW of 4.38% based on a call at $25.00 2010-12-30.
RY.PR.C PerpetualDiscount 132,200 Recent new issue
CU.PR.T Scraps 110,000 Nesbitt crossed 110,000 at $25.60 and it closed at 25.28-77. This is a silly issue. It is currently redeemable at $25.00, pays $1.475, and has a pre-tax YTW of -11.82% based on an immediate call. There are 2,277,675 shares outstanding, for a quoted market value of just over $58-million. So it pays a lot, attracts listing fees and is generally a prime candidate for being called. But it isn’t called! According to the company’s third-quarter statement “on October 11, 2006, the AEUB issued a decision which resulted in no significant impact on earnings. Among other things, the decision upheld ATCO’s treatment of pension costs and approved the continued use of preferred shares. In addition, the decision approved minimal changes to head office rent expense and executive compensation.” When we look at the actual decision, we find “CG submitted that the Board should address what proportion of the capital structure, if any,equity preferred shares should constitute. CG further submitted that the Board should direct AU to redeem the series Q, R and S preferred shares which are open for redemption and that this would result in the preferred share level falling to a more appropriate level of about 3%.” In other words, these things only exist due to regulatory boneheadism and game-playing thereof. Too risky. Ick.
CU.PR.V Scraps 100,000 Nesbitt crossed 100,000 at $25.40 – it closed at 25.26-42. Currently callable at $25.00, pays $1.325, CU is a Pfd-2(high) issuer by DBRS. See above discussion of CU.PR.T. Ah, the joys of regulated cost-plus financing!
W.PR.H PerpetualPremium 69,300 Scotia crossed 68,500 at $26.50. At the closing bid of $26.49, this has a YTW of 4.49% based on a call 2013-2-14. It pays $1.375 and has no declining-call-premium period to complicate things, so one could regard this as a reasonably defensive perpetual issue (in that rates will have to go up substantially before it trades below par). But I think its expensive.

There were eleven other index-included issues trading over 10,000 shares today.

Data Changes

HIMIPref™ Data Changes : FAL.PR.F, FAL.PR.G, BMO.PR.I

As noted in an earlier post, Falconbridge’s new owners redeemed the issues FAL.PR.F (securityCode A36042) and FAL.PR.G (security code A36043). These entries have now been processed to the HIMIPref™ database, delistingDate 2006-11-02.

A rounding error was discovered in the instrumentDataRecord for BMO.PR.I, which has been recently discussed. The dividendRate had been recorded as $1.188 and has now been corrected to $1.1875.

HIMI Preferred Indices

HIMI Preferred Indices : November, 1994

All indices were assigned a value of 1000.0 as of December 31, 1993.

HIMI Index Values 1994-11-30
Index Closing Value (Total Return) Issues Mean Credit Quality Median YTW Median DTW Median Daily Trading Mean Current Yield
Ratchet 1,092.2 0 0 0 0 0 0
FixedFloater 1,092.2 0 0 0 0 0 0
Floater 1,030.6 4 1.45 5.63% 14.4 109M 6.75%
OpRet 972.8 20 1.34 7.24% 5.3 68M 7.34%
SplitShare 972.8 0 0 0 0 0 0
Interest-Bearing 972.8 0 0 0 0 0 0
Perpetual-Premium 1,023.1 5 1.19 7.03% 4.0 64M 8.29%
Perpetual-Discount 1,011.2 1 1.00 7.41% 12.1 43M 7.34%

Index Constitution, 1994-11-30, Pre-Rebalancing

Index Constitution, 1994-11-30, Post-Rebalancing

Issue Comments

BMO.PR.I

We’ve looked at BMO.PR.G (YTW at the 11/7 closing bid of $25.48 is -9.24%) and at RY.PR.K (YTW at the 11/7 closing bid of $25.52 is -10.64%), but there is another member of the OperatingRetractible Index that has a negative Yield-to-Worst.

The option schedule for BMO.PR.I is:

  • Redemption      2005-11-25      2006-11-24  25.500000
  • Redemption      2006-11-25      2007-11-24  25.250000
  • Redemption      2007-11-25   INFINITE DATE  25.000000
  • Retraction      2008-11-25   INFINITE DATE  26.040000

which, at the 11/7 closing bid of $25.51, gives rise to the optionCalculationList:

  • Call  2006-12-07 YTM: 1.08 % [Restricted: 0.09 %] (Prob: 16.76 %)
  • Call  2006-12-25 YTM: -4.99 % [Restricted: -0.66 %] (Prob: 11.55 %)
  • Call  2007-12-25 YTM: 2.69 % [Restricted: 2.69 %] (Prob: 0.44 %)
  • Soft Maturity  2008-11-24 YTM: 3.60 % [Restricted: 3.60 %] (Prob: 71.25 %)

So: YTW = -4.99%. If it makes it to the softMaturity, then the yield will be considerably greater (one might even call it respectable: 3.60% in dividends net of capital loss converts to 5.04% interest-equivalent for Ontario Investors who don’t need the money anyway, which is a lot better than you can get at the bank for a two-year deposit … or in the bond market.

There are clearly at least some people who are willing to slap some money on the table and bet that it won’t be called as soon as the call price declines to $25.25!

There may be some validity to this view: BMO.PR.I pays $1.1875 p.a. as a dividend and BMO can save $0.25 by waiting an extra year before calling, giving the shares a net cash cost of $0.9375 for that year, which is simple interest of 3.71% on the $25.25 that they’d have to pony up for the shares, interest-equivalent of 5.20% using the shareholders’ conversion factor … I’m not sure what factor the bank would use.

I’d call it a tossup, really: the answer will be somewhat dependent upon BMO’s balance sheet objectives (since these are retractible, they get counted as long-term debt for capital calculation purposes … perpetuals with non-cumulative dividends get counted as equity) and their ability to refinance. Against that is the consideration that a new issue of prefs would come with issuance costs attached of perhaps 3% of face value (which is a major reason why immediate calls are not calculated to have a larger probability).

 Tossups, feh. Paying $25.51 for this issue is taking too much risk for not enough return, according to me. HIMIPref™ won’t recommend it, firstly because the eligibleForPurchase function doesn’t like the short-term nature of the instrument and secondly because the totalRewardAsk is so low, which is largely due to the negative YTW.

Attached to this post for your delectation and amusement are graphs of this issue’s Yield-to-Worst and flatBidPrice for the past year.

BMO.PR.I has had a total return of 2.97% since 2005-11-30, based on the following data reported by the performanceBox:

Account Name Bank of Montreal Cl ‘B’ Pr Series 6
Account Number XXA40004
Period From 2005-11-30
Period To 2006-11-07
Pre-tax Calculation Pre-Tax (approximate)
Trade Date Valuations YES
Tax Schedule ID -1
Total Return for Period 2.97%
 
Date Cash Flow Bid Price
2005-11-30 0.00 25.95
2005-12-30 0.00 25.75
2006-01-31 0.00 25.85
2006-02-01 -0.30 25.64
2006-02-28 0.00 25.71
2006-03-31 0.00 25.75
2006-04-28 0.00 25.60
2006-05-03 -0.30 25.34
2006-05-31 0.00 25.42
2006-06-30 0.00 25.47
2006-07-31 0.00 25.75
2006-08-02 -0.30 25.40
2006-08-31 0.00 25.41
2006-09-29 0.00 25.48
2006-10-31 0.00 25.69
2006-11-01 -0.30 25.40
2006-11-07 0.00 25.51

 

which just goes to show that you usually shouldn’t put money into issues with lousy YTWs, because you usually get burned!

Market Action

November 7, 2006

Note that these indices are experimental; the absolute and relative daily values are expected to change in the final version
Index Mean Current Yield (at bid) Mean YTW Mean Average Trading Value Mean Mod Dur (YTW) Issues Day’s Perf. Index Value
Ratchet 4.13% 4.08% 35,841 10.61 2 +0.2625% 1,017.2
Fixed-Floater 4.81% 3.85% 133,535 12.98 7 +0.2093% 1,028.2
Floater 4.50% -20.77% 68,450 6.52 5 +0.1108% 1,029.3
Op. Retract 4.66% 0.82% 82,708 2.28 18 0.2364% 1,026.5
Split-Share 5.02% 3.58% 178,784 3.58 9 0.1570% 1,025.7
Interest Bearing 6.93% 5.46% 61,395 1.92 7 +0.0339% 1,016.6
Perpetual-Premium 5.07% 3.99% 245,507 3.99 49 +0.0874% 1,042.5
Perpetual-Discount 4.59% 4.63% 589,465 16.14 7 -0.1038% 1,033.9
Major Price Changes
Issue Index Change Notes
BSD.PR.A InterestBearing -1.9076% Dived to $9.77-99, but only an odd-lot of 35 shares traded at the bid – the official day’s low was $9.89. I commented on this issue on November 3: it’s not such a bad issue that it should be trading to yield 6.58% at the bid! I suspect that a lot of this volatility is caused by holders of matched units selling everything so that, essentially, a speculator has to be found to buy the capital units and a preferred security investor has to be found for the prefs … but I have nothing to back up this speculation except logic, and we all know how dangerous that is!
STW.PR.A InterestBearing +1.1000% Continues to bounce, as it has for the last three days … see above. This time it did it on volume of 48,552 shares, closing at $10.11-23, 1×30.
FCN.PR.A InterestBearing +1.1000% This one was discussed on November 1, so I’ll try not to repeat myself. Closed at $10.11-35, 10×10, on volume of 20,720 shares. I suspect it’s a little expensive there, due to the structure of FCN. On the positive side, there is an asset coverage test of 1.4:1 … less than that and the capital units don’t get any distributions. On the negative side, the Capital Unit holders can retract every March and the prefs are then callable at par (if they would then comprise more than 40% of Total Assets – the manager has no obligation to maintain a matched number of shares. The NAV (applicable to Capital Units) on November 6 was $20.59 according to the manager and FCN.UN closed at $18.92-19 today, according to the TSX. I suspect that buying a basket of trusts, on a leveraged basis, at an 8%+ discount, cashable in 5-months, will strike some as being an attractive speculation … and there fore that there will be a LOT of redemptions next March!
GWO.PR.E OpRet +1.3031% Nice to get away from all these Income-Trust-Split-Corps! Some small-time late buying by Scotia and HSBC (totalling 1505 shares!) took the price upupUP and it closed at $27.21-29, 5×4. Rather expensive there, if you ask me, with a Pre-Tax YTW of 2.04% based on a call 2009-4-30.
Volume Highlights
Issue Index Volume Notes
WN.PR.D PerpetualPremium 43,750 Scotia crossed 40,000 at $26.30, which was the closing bid. Pre-tax YTW of 4.52% based on a call 2014-10-31. Not a lot when bank perpetuals are being issued to yield 4.70%.
WN.PR.C PerpetualPremium 31,400 Scotia crossed 30,400 @26.30. YTW 4.51% based on a call 2014-7-31. Yeah, these look kind of expensive too.
NA.PR.L PerpetualPremium 25,640 Closed at $25.73-77, 24×3. The pre-tax bid-YTW here is 4.41%, based on a 2014-6-14 call. These are Pfd-1(low)s, compared to Weston’s Pfd-2(low).
RY.PR.C PerpetualPremium 25,600 Not a lot of action, really, seeing as how the issue’s not even a week old.
WFS.PR.A SplitShare 59,000 Nice to see a split share make the volume table on merit, even after accounting for the lower price! This is a perennially attractive issue, now yielding 3.91% to its maturity 2011-6-30.

There were twelve other index-included issues trading over 10,000 shares today.

Market Action

November 6, 2006

Still behind, but moving fast! Index values will be updated in the extremely near future!

Index values updated 2006-11-07

Note that these indices are experimental; the absolute and relative daily values are expected to change in the final version
Index Mean Current Yield (at bid) Mean YTW Mean Average Trading Value Mean Mod Dur (YTW) Issues Day’s Perf. Index Value
Ratchet 4.14% 4.07% 37,124 10.57 2 +0.1007% 1,014.6
Fixed-Floater 4.82% 3.89% 135,608 10.71 7 +0.1258% 1,026.0
Floater 4.51% -20.51% 69,748 6.51 5 +0.0961% 1,028.2
Op. Retract 4.68% 1.22% 82,395 2.28 18 0.0848% 1,024.1
Split-Share 5.02% 3.64% 179,979 3.35 9 0.1733% 1,024.1
Interest Bearing 6.93% 5.54% 58,957 2.41 7 -0.0916% 1,016.3
Perpetual-Premium 5.08% 3.94% 247,776 3.94 49 +0.0081% 1,041.6
Perpetual-Discount 4.59% 4.62% 596,718 16.15 7 -0.1036% 1,035.0
Major Price Changes
Issue Index Change Notes
STW.PR.A InterestBearing -1.5748% Still bouncing around, as it has for the last two days.
ACO.PR.A PerpetualPremium +1.2545% This went ex-dividend today, but nobody noticed! At the bid of $27.84, it has a YTW of 1.98% based on a call 2008-12-31 … yield will have been 3.24% if it survives until 2011-11-30.
Volume Highlights
Issue Index Volume Notes
RY.PR.C PerpetualPremium 210,425 Recent New Issue
HSB.PR.D PerpetualPremium 60,200 Scotia crossed 60,000 @ 26.65. The Pre-Tax YTW is 4.14% based on a call 2015-1-30.
PWF.PR.L PerpetualPremium 59,635 Scotia crossed 50,000 @ 26.59. The Pre-Tax YTW is 4.32% based on a call 2015-11-30 … which makes you wonder who bought the HSB.PR.D!
CM.PR.B PerpetualPremium 57,630 Perhaps this is people cashing out of the called issue to buy the new one?
RY.PR.B PerpetualPremium 33,115 YTW of 4.42% based on a call 2015-9-23. OK, so maybe buyers of HSB.PR.D are full up of PWF.PR.L and buy another name. But why are buyers going after the RY.PR.B when the RY.PR.C yields 13bp more? Can a slightly lower chance of a call (and calls are good, remember!) really be worth that much?

There were eight other index-included issues trading over 10,000 shares today.