{"id":28172,"date":"2015-03-09T19:31:35","date_gmt":"2015-03-10T00:31:35","guid":{"rendered":"http:\/\/prefblog.com\/?p=28172"},"modified":"2015-03-09T19:31:35","modified_gmt":"2015-03-10T00:31:35","slug":"march-9-2015","status":"publish","type":"post","link":"https:\/\/prefblog.com\/?p=28172","title":{"rendered":"March 9, 2015"},"content":{"rendered":"

There’s a bit more colour about the effect of the US jobs number, discussed March 6<\/a> on the treasury long bond<\/a>:<\/p>\n

Since hitting an all-time low of 2.22 percent on Jan. 30, Treasury 30-year bond yields have posted the biggest five-week jump in six years as better-than-forecast employment growth led investors to pull forward wagers for the Federal Reserve to raise interest rates.
…<\/b>
The 30-year bond yield rose 25 basis points, or 0.25 percentage point, this week to 2.84 percent, according to Bloomberg Bond Trader prices.<\/p>\n

That pushed the yield increase to 62 basis points since January. The move is the biggest since a 1 percentage point rise in the five weeks ended Jan. 30, 2009, after the Fed said it was considering buying Treasuries to help stimulate economic growth.
…<\/b>
Yields soared March 6 after the Labor Department reported the U.S. added 295,000 jobs last month, compared with a forecast for a 235,000 gain in a Bloomberg survey. The unemployment rate fell to 5.5 percent, an almost seven-year low, from 5.7 percent.<\/p>\n

It was 12th straight month payrolls have increased by at least 200,000, the best run since March 1995. Payrolls rose 3.1 million in 2014, the most in 15 years.<\/p><\/blockquote>\n

And some colour on the effect of the suspension of Canadian forward guidance<\/a>:<\/p>\n

Pacific Investment Management Co.\u2019s Ed Devlin is getting out of Canadian government bonds, and Bank of Canada Governor Stephen Poloz is the reason why.<\/p>\n

Mr. Devlin, who oversees about $17-billion (U.S.), including the Canadian portfolios for the world\u2019s biggest manager of bond funds, said higher yields are needed to compensate for the risk of buying debt whipsawed by Mr. Poloz\u2019s policy pronouncements.<\/p>\n

\u201cInvestors should require a bigger risk premium to invest in these bonds,\u201d Mr. Devlin said by phone from Los Angeles on Friday. \u201cIf you don\u2019t know what they\u2019re going to do, you should get paid more money to invest in them than if they were fairly predictable.\u201d<\/p><\/blockquote>\n

And there are the usual arguments about this<\/a>:<\/p>\n

Gluskin-Sheff chief economist David Rosenberg said last week the confusion was putting the Bank of Canada\u2019s credibility at risk.<\/p>\n

\u201cThe fact that they decided to stop offering guidance and start serving up confusion makes me gun-shy about making a call,\u201d Rosenberg told Bloomberg. \u201cIf you\u2019re trying to promote economic growth, you probably don\u2019t want to generate too much volatility in the financial markets to achieve that goal.\u201d<\/p>\n

But [Dominion Lending Centres Chief Economist Sherry] Cooper says Bay Street should spend more time watching the data, instead of obsessing about what the bank will do.<\/p>\n

\u201cWhat caused this hissy fit on Bay Street was the economists were wrong,\u201d Cooper wrote in a note. \u201cNo one expected the rate cut, so caught with their proverbial pants down, the pundits dumped on Poloz for having misled them.\u201d<\/p>\n

Cooper said not only was Poloz right to cut rates, but she also sees no reason why the central bank should \u201ctelegraph rate moves in advance.\u201d<\/p>\n

\u201cThe lamentation over the loss of \u2018forward guidance\u2019 is pathetic .\u2026 Everyone knows that central bank action is data dependent. When the data surprise, all bets are off,\u201d she wrote.<\/p><\/blockquote>\n

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts off 15bp, FixedResets down 21bp and DeemedRetractibles gaining 3bp. Volatility was down from the levels we’ve generally seen for the past three months. Volume was low.<\/p>\n

For as long as the FixedReset market is so violently unsettled, I\u2019ll keep publishing updates of the more interesting and meaningful series of FixedResets\u2019 Implied Volatilities. This doesn\u2019t include Enbridge because although Enbridge has a large number of issues outstanding, all of which are quite liquid, the range of Issue Reset Spreads is too small for decent conclusions. The low is 212bp (ENB.PR.H; second-lowest is ENB.PR.D at 237bp) and the high is a mere 268 for ENB.PF.G.<\/p>\n

Remember that all rich \/cheap assessments are:
\n\u00bb based on Implied Volatility Theory only
\n\u00bb are relative only to other FixedResets from the same issuer
\n\u00bb assume constant GOC-5 yield
\n\u00bb assume constant Implied Volatility
\n\u00bb assume constant spread<\/p>\n

Here\u2019s TRP:<\/p>\n

\"impVol_TRP_150309\"<\/a>
Click for Big<\/i><\/div>\n

TRP.PR.E, which resets 2019-10-30 at +235, is bid at 24.14 to be $1.20 rich, while TRP.PR.G, resetting 2020-11-30 at +296, is $1.07 cheap at its bid price of 24.75.<\/p>\n

\"impVol_MFC_150309\"<\/a>
Click for Big<\/i><\/div>\n

Another excellent fit, but the numbers are perplexing. Implied Volatility for MFC continues to be a conundrum, although it declined substantially today. It is still too high if we consider that NVCC rules will never apply to these issues; it is still too low if we consider them to be NVCC non-compliant issues (and therefore with Deemed Maturities in the call schedule).<\/p>\n

Most expensive is MFC.PR.L, resetting at +216 on 2019-6-19, bid at 23.91 to be $0.34 rich, while MFC.PR.H, resetting at +313bp on 2017-3-19, is bid at 25.91 to be $0.38 cheap.<\/p>\n

\"impVol_BAM_150309\"<\/a>
Click for Big<\/i><\/div>\n

The fit on this series is actually quite reasonable \u2013 it\u2019s the scale that makes it look so weird.<\/p>\n

The cheapest issue relative to its peers is BAM.PR.Z, resetting at +296bp on 2017-12-31, bid at 25.26 to be $0.45 cheap. BAM.PF.E, resetting at +255bp 2020-3-31 is bid at 24.42 and appears to be $0.61 rich.<\/p>\n

\"impVol_FTS_150309\"<\/a>
Click for Big<\/i><\/div>\n

This is just weird because the middle is expensive and the ends are cheap but anyway \u2026 FTS.PR.H, with a spread of +145bp, and bid at 16.66, looks $1.56 cheap and resets 2015-6-1. FTS.PR.K, with a spread of +205bp and resetting 2019-3-1, is bid at 23.77 and is $1.04 rich.<\/p>\n

\"pairs_FR_150309\"<\/a>
Click for Big<\/i><\/div>\n

The cancellation of the previously announced deflationary environment had an immediate effect on the implied three month bill rate, with investment-grade pairs predicting an average over the next five years of a whopping 0.10%.<\/p>\n

Not shown is the DC.PR.B \/ DC.PR.D pair, which implies an average rate of negative 1.77% until its exchange date 2019-9-30.<\/p>\n

\"pairs_FF_150309\"<\/a>
Click for Big<\/i><\/div>\n

Shall we just say that this exhibits a high level of confidence in the continued rapacity of Canadian banks?<\/p>\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n
HIMIPref™ Preferred Indices
These values reflect the December 2008 revision of the HIMIPref™ Indices<\/strong>
Values are provisional and are finalized monthly<\/td>\n<\/tr>\n
Index<\/td>\nMean
Current
Yield
(at bid)<\/td>\n		Median
YTW<\/td>\n		Median
Average
Trading
Value<\/td>\n		Median
Mod Dur
(YTW)<\/td>\n		Issues<\/td>\nDay’s Perf.<\/td>\nIndex Value<\/td>\n<\/tr>\n
Ratchet<\/td>\n0.00 %<\/td>\n0.00 %<\/td>\n0<\/td>\n0.00<\/td>\n0<\/td>\n-0.4777 %<\/td>\n2,408.7<\/td>\n<\/tr>\n
FixedFloater<\/td>\n0.00 %<\/td>\n0.00 %<\/td>\n0<\/td>\n0.00<\/td>\n0<\/td>\n-0.4777 %<\/td>\n4,211.5<\/td>\n<\/tr>\n
Floater<\/td>\n3.12 %<\/td>\n3.16 %<\/td>\n73,188<\/td>\n19.26<\/td>\n3<\/td>\n-0.4777 %<\/td>\n2,560.6<\/td>\n<\/tr>\n
OpRet<\/td>\n4.07 %<\/td>\n0.83 %<\/td>\n105,283<\/td>\n0.28<\/td>\n1<\/td>\n0.0000 %<\/td>\n2,765.8<\/td>\n<\/tr>\n
SplitShare<\/td>\n4.48 %<\/td>\n4.60 %<\/td>\n56,172<\/td>\n4.45<\/td>\n5<\/td>\n0.0080 %<\/td>\n3,207.6<\/td>\n<\/tr>\n
Interest-Bearing<\/td>\n0.00 %<\/td>\n0.00 %<\/td>\n0<\/td>\n0.00<\/td>\n0<\/td>\n0.0000 %<\/td>\n2,529.1<\/td>\n<\/tr>\n
Perpetual-Premium<\/td>\n5.29 %<\/td>\n-0.36 %<\/td>\n56,628<\/td>\n0.08<\/td>\n25<\/td>\n-0.0454 %<\/td>\n2,520.9<\/td>\n<\/tr>\n
Perpetual-Discount<\/td>\n4.96 %<\/td>\n5.03 %<\/td>\n154,171<\/td>\n15.08<\/td>\n9<\/td>\n-0.1531 %<\/td>\n2,804.3<\/td>\n<\/tr>\n
FixedReset<\/td>\n4.42 %<\/td>\n3.64 %<\/td>\n233,557<\/td>\n16.51<\/td>\n80<\/td>\n-0.2081 %<\/td>\n2,423.9<\/td>\n<\/tr>\n
Deemed-Retractible<\/td>\n4.90 %<\/td>\n0.02 %<\/td>\n105,071<\/td>\n0.14<\/td>\n37<\/td>\n0.0277 %<\/td>\n2,656.5<\/td>\n<\/tr>\n
FloatingReset<\/td>\n2.53 %<\/td>\n2.91 %<\/td>\n87,195<\/td>\n6.33<\/td>\n8<\/td>\n-0.0854 %<\/td>\n2,335.4<\/td>\n<\/tr>\n<\/table>\n\n\n\n\n\n\n\n\n\n
Performance Highlights<\/strong><\/td>\n<\/tr>\n
Issue<\/td>\nIndex<\/td>\nChange<\/td>\nNotes<\/td>\n<\/tr>\n
CIU.PR.C<\/td>\nFixedReset<\/td>\n-4.61 %<\/td>\nYTW SCENARIO
\nMaturity Type : Limit Maturity
\nMaturity Date\t: 2045-03-09
\nMaturity Price : 15.74
\nEvaluated at bid price : 15.74
\nBid-YTW : 3.79 %<\/td>\n<\/tr>\n
BAM.PR.Z<\/td>\nFixedReset<\/td>\n-1.71 %<\/td>\nYTW SCENARIO
\nMaturity Type : Limit Maturity
\nMaturity Date\t: 2045-03-09
\nMaturity Price : 23.50
\nEvaluated at bid price : 25.26
\nBid-YTW : 3.92 %<\/td>\n<\/tr>\n
TRP.PR.A<\/td>\nFixedReset<\/td>\n-1.21 %<\/td>\nYTW SCENARIO
\nMaturity Type : Limit Maturity
\nMaturity Date\t: 2045-03-09
\nMaturity Price : 19.62
\nEvaluated at bid price : 19.62
\nBid-YTW : 3.76 %<\/td>\n<\/tr>\n
PWF.PR.P<\/td>\nFixedReset<\/td>\n-1.01 %<\/td>\nYTW SCENARIO
\nMaturity Type : Limit Maturity
\nMaturity Date\t: 2045-03-09
\nMaturity Price : 18.65
\nEvaluated at bid price : 18.65
\nBid-YTW : 3.53 %<\/td>\n<\/tr>\n
VNR.PR.A<\/td>\nFixedReset<\/td>\n1.11 %<\/td>\nYTW SCENARIO
\nMaturity Type : Limit Maturity
\nMaturity Date\t: 2045-03-09
\nMaturity Price : 23.30
\nEvaluated at bid price : 24.61
\nBid-YTW : 3.84 %<\/td>\n<\/tr>\n
BAM.PR.X<\/td>\nFixedReset<\/td>\n1.93 %<\/td>\nYTW SCENARIO
\nMaturity Type : Limit Maturity
\nMaturity Date\t: 2045-03-09
\nMaturity Price : 19.04
\nEvaluated at bid price : 19.04
\nBid-YTW : 3.95 %<\/td>\n<\/tr>\n<\/table>\n\n\n\n\n\n\n\n\n\n\n
Volume Highlights<\/strong><\/td>\n<\/tr>\n
Issue<\/td>\nIndex<\/td>\nShares
Traded<\/td>\n		Notes<\/td>\n<\/tr>\n
CM.PR.G<\/td>\nPerpetual-Premium<\/td>\n352,980<\/td>\nCalled for redemption 2015-4-30<\/a>
\nYTW SCENARIO
\nMaturity Type : Call
\nMaturity Date\t: 2015-04-08
\nMaturity Price : 25.00
\nEvaluated at bid price : 25.28
\nBid-YTW : -1.38 %<\/td>\n<\/tr>\n
RY.PR.W<\/td>\nPerpetual-Premium<\/td>\n85,708<\/td>\nNesbitt crossed 85,000 at 25.30.
\nYTW SCENARIO
\nMaturity Type : Call
\nMaturity Date\t: 2015-04-08
\nMaturity Price : 25.00
\nEvaluated at bid price : 25.24
\nBid-YTW : -4.58 %<\/td>\n<\/tr>\n
OSP.PR.A<\/td>\nSplitShare<\/td>\n66,500<\/td>\nRecent new issue<\/a>.
\nYTW SCENARIO
\nMaturity Type : Hard Maturity
\nMaturity Date\t: 2020-03-31
\nMaturity Price : 10.00
\nEvaluated at bid price : 10.21
\nBid-YTW : 4.60 %<\/td>\n<\/tr>\n
RY.PR.A<\/td>\nDeemed-Retractible<\/td>\n35,817<\/td>\nYTW SCENARIO
\nMaturity Type : Call
\nMaturity Date\t: 2015-04-08
\nMaturity Price : 25.25
\nEvaluated at bid price : 25.56
\nBid-YTW : -8.38 %<\/td>\n<\/tr>\n
RY.PR.J<\/td>\nFixedReset<\/td>\n33,480<\/td>\nYTW SCENARIO
\nMaturity Type : Limit Maturity
\nMaturity Date\t: 2045-03-09
\nMaturity Price : 23.14
\nEvaluated at bid price : 24.98
\nBid-YTW : 3.55 %<\/td>\n<\/tr>\n
BAM.PR.X<\/td>\nFixedReset<\/td>\n30,317<\/td>\nYTW SCENARIO
\nMaturity Type : Limit Maturity
\nMaturity Date\t: 2045-03-09
\nMaturity Price : 19.04
\nEvaluated at bid price : 19.04
\nBid-YTW : 3.95 %<\/td>\n<\/tr>\n
There were 20 other index-included issues trading in excess of 10,000 shares.<\/td>\n<\/tr>\n<\/table>\n\n\n\n\n\n\n\n\n\n
Wide Spread Highlights<\/strong><\/td>\n<\/tr>\n
Issue<\/td>\nIndex<\/td>\nQuote Data and Yield Notes<\/td>\n<\/tr>\n
CIU.PR.C<\/td>\nFixedReset<\/td>\nQuote: 15.74 – 16.64
\nSpot Rate : 0.9000
\nAverage : 0.5670<\/p>\n

YTW SCENARIO
\nMaturity Type : Limit Maturity
\nMaturity Date\t: 2045-03-09
\nMaturity Price : 15.74
\nEvaluated at bid price : 15.74
\nBid-YTW : 3.79 %<\/td>\n<\/tr>\n

ENB.PF.G<\/td>\nFixedReset<\/td>\nQuote: 22.21 – 22.70
\nSpot Rate : 0.4900
\nAverage : 0.3279<\/p>\n

YTW SCENARIO
\nMaturity Type : Limit Maturity
\nMaturity Date\t: 2045-03-09
\nMaturity Price : 21.77
\nEvaluated at bid price : 22.21
\nBid-YTW : 4.31 %<\/td>\n<\/tr>\n

SLF.PR.G<\/td>\nFixedReset<\/td>\nQuote: 17.95 – 18.42
\nSpot Rate : 0.4700
\nAverage : 0.3253<\/p>\n

YTW SCENARIO
\nMaturity Type : Hard Maturity
\nMaturity Date\t: 2025-01-31
\nMaturity Price : 25.00
\nEvaluated at bid price : 17.95
\nBid-YTW : 6.20 %<\/td>\n<\/tr>\n

PWF.PR.P<\/td>\nFixedReset<\/td>\nQuote: 18.65 – 18.98
\nSpot Rate : 0.3300
\nAverage : 0.2528<\/p>\n

YTW SCENARIO
\nMaturity Type : Limit Maturity
\nMaturity Date\t: 2045-03-09
\nMaturity Price : 18.65
\nEvaluated at bid price : 18.65
\nBid-YTW : 3.53 %<\/td>\n<\/tr>\n

TRP.PR.A<\/td>\nFixedReset<\/td>\nQuote: 19.62 – 19.90
\nSpot Rate : 0.2800
\nAverage : 0.2046<\/p>\n

YTW SCENARIO
\nMaturity Type : Limit Maturity
\nMaturity Date\t: 2045-03-09
\nMaturity Price : 19.62
\nEvaluated at bid price : 19.62
\nBid-YTW : 3.76 %<\/td>\n<\/tr>\n

PVS.PR.C<\/td>\nSplitShare<\/td>\nQuote: 25.07 – 25.30
\nSpot Rate : 0.2300
\nAverage : 0.1589<\/p>\n

YTW SCENARIO
\nMaturity Type : Hard Maturity
\nMaturity Date\t: 2017-12-10
\nMaturity Price : 25.00
\nEvaluated at bid price : 25.07
\nBid-YTW : 4.77 %<\/td>\n<\/tr>\n<\/table>\n","protected":false},"excerpt":{"rendered":"

There’s a bit more colour about the effect of the US jobs number, discussed March 6 on the treasury long bond: Since hitting an all-time low of 2.22 percent on Jan. 30, Treasury 30-year bond …<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[15],"tags":[],"class_list":["post-28172","post","type-post","status-publish","format-standard","hentry","category-market-action"],"_links":{"self":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts\/28172","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=28172"}],"version-history":[{"count":0,"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts\/28172\/revisions"}],"wp:attachment":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=28172"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=28172"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=28172"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}