{"id":29153,"date":"2015-05-23T02:31:20","date_gmt":"2015-05-23T07:31:20","guid":{"rendered":"http:\/\/prefblog.com\/?p=29153"},"modified":"2015-05-23T02:31:20","modified_gmt":"2015-05-23T07:31:20","slug":"may-22-2015","status":"publish","type":"post","link":"https:\/\/prefblog.com\/?p=29153","title":{"rendered":"May 22, 2015"},"content":{"rendered":"

Inflation picked up a little in the US<\/a>:<\/p>\n

The U.S. cost of living excluding what households pay for food and fuel climbed more than forecast in April, indicating inflation is gravitating toward the Federal Reserve\u2019s goal.<\/p>\n

The core consumer-price index rose 0.3 percent, the biggest gain since January 2013 and reflecting broad-based increases, a Labor Department report showed Friday. In the last three months, core inflation advanced an annualized 2.6 percent, the most since August 2011. Including food and fuel, the gauge was up a more moderate 0.1 percent as prices fell at grocery stores and gas stations.
…<\/b>
Inflation will need to keep rising in order for Fed officials to be \u201creasonably confident\u201d that progress on their price stability mandate is sufficient to allow for an increase in the benchmark interest rate. The Fed\u2019s preferred measure of price growth, the personal consumption expenditures gauge, rose 0.3 percent in the year ended March and hasn\u2019t met the bank\u2019s goal since April 2012.<\/p><\/blockquote>\n

And Yellen sees a gradual tightening commencing this year<\/a>:<\/p>\n

Federal Reserve Chair Janet Yellen said she still expects to raise interest rates this year if the economy meets her forecasts, with a gradual pace of tightening to follow.<\/p>\n

While the labor market is nearing full strength, \u201cwe are not there yet,\u201d she said Friday in a speech in Providence, Rhode Island.<\/p>\n

\u201cIf the economy continues to improve as I expect, I think it will be appropriate at some point this year to take the initial step to raise the federal funds rate,\u201d she said.<\/p>\n

Even after the first rate increase since 2006, \u201cI anticipate that the pace of normalization is likely to be gradual,\u201d Yellen, 68, said.
…<\/b>
She also repeated the Fed\u2019s two criteria for raising rates, which have been kept near zero since December 2008: \u201cI will need to see continued improvement in labor market conditions, and I will need to be reasonably confident that inflation will move back to 2 percent over the medium term.\u201d<\/p><\/blockquote>\n

Assiduous Reader prefhound<\/i> sent me a wonderful link in the Economist<\/a>:<\/p>\n

So-called contingent convertible bonds, or \u201ccocos\u201d, turn into equity when a bank is struggling, trimming its debts and interest payments. Coco issuance has soared since 2010, as banks have sought to keep regulators happy by bolstering their ability to withstand losses. These fancy bonds have the upsides of debt in good times, but provide a cushion in a crisis.<\/p>\n

Or so the theory goes. Cocos usually convert when regulators decree that a bank\u2019s capital has fallen below some threshold. In the height of a crisis, that puts regulators in a bind: announcing that a bank is weak can cause panic. A conversion also imposes sudden losses on bondholders, who find themselves holding shares worth much less than the bonds that spawned them. If the bondholders are themselves in distress, those losses can reverberate around the financial system.<\/p>\n

Jeremy Bulow of Stanford University and Paul Klemperer of Oxford University see a way to overcome these problems with a new instrument called an equity recourse note, or ERN. Like a coco, an ERN functions as debt in normal times. But the trigger for the conversion is the bank\u2019s share price, rather than a regulatory measure of capital. When the share price falls by enough\u2014say, to 25% of its initial value\u2014the bank can make repayments on the bond with new shares rather than with cash.
…<\/b>
This avoids several problems with cocos. There is no uncertainty about how regulators will behave. Abrupt losses are minimised: investors can see when the share price is nearing the trigger, and if it recovers, cash payments resume. Because the new shares are worth no more than the cash saved, ERN conversions should shore up a bank\u2019s share price (by contrast, when cocos convert, enough new shares are created to push the price down).<\/p><\/blockquote>\n

The source paper is Equity Recourse Notes: Creating Counter-cyclical Bank Capital<\/a>. I will try to give this its own dedicated post soon.<\/p>\n

So the Dalhousie Dentistry Debacle has come to a conclusion<\/a>:<\/p>\n

\u201cThere was an immense amount of trying to find out what happened here and then the next stage was how did the facts matter, what was the impact,\u201d said Jennifer Llewellyn, the law school professor who led the restorative justice process that began in December.<\/p>\n

Twelve of the 13 male dentistry students in the group were involved in that process and participated in more than 150 hours each of seminars, workshops and discussions with their male and female classmates, faculty, staff and community members. The 12 have now met professionalism standards and are eligible to graduate if they complete their clinical work, the university said.
…<\/b>
Friday\u2019s report is only the first of several to come. A separate, independent task force led by University of Ottawa law professor Constance Backhouse will release its own report at the end of June.<\/p><\/blockquote>\n

And this crap, boys and girls, is why university education is so expensive. The best part, however, comes from an Ontario regulator:<\/p>\n

\u201cI have always taken the position that just because a university gives out a dental degree does not mean I have to give out a licence,\u201d said Irwin Fefergrad, registrar of the Royal College of Dental Surgeons of Ontario.<\/p>\n

In January, the college changed the application form required for every applicant who wants to practise in the province to include a question about whether they have ever been the subject of an inquiry or investigation by a university. If the answer is yes, the College will collect information on that inquiry before issuing a licence, Mr. Fefergrad said.<\/p><\/blockquote>\n

So the useless parasite will trust a University to grant a dental degree, but not to come to acceptable conclusions following an inquiry or investigation; he intends to gather information and, presumably, weigh it carefully. Nice work if you can get it! Particularly since anybody who wants to be a dentist in Ontario had damn well better be very polite to wise Mr. Fefergrad.<\/p>\n

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts gaining 1bp, FixedResets off 2bp and DeemedRetractibles down 4bp. Volatility was higher than one might expect, given the calm overall figures, with ENB FixedResets prominent on the downside. Volume was average.<\/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_150522\"<\/a>
Click for Big<\/i><\/div>\n

TRP.PR.E, which resets 2019-10-30 at +235, is bid at 24.03 to be $0.87 rich, while TRP.PR.G, resetting 2020-11-30 at +296, is $0.82 cheap at its bid price of 24.98.<\/p>\n

\"impVol_MFC_150522\"<\/a>
Click for Big<\/i><\/div>\n

Another excellent fit, but the numbers are perplexing. Implied Volatility for MFC continues to be a conundrum. 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.N, resetting at +230 on 2020-3-19, bid at 24.30 to be $0.63 rich, while MFC.PR.G, resetting at +290bp on 2016-12-19, is bid at 25.10 to be $0.54 cheap.<\/p>\n

\"impVol_BAM_150522\"<\/a>
Click for Big<\/i><\/div>\n

The cheapest issue relative to its peers is BAM.PF.B, resetting at +263bp on 2019-3-31, bid at 22.77 to be $0.51 cheap. BAM.PF.G, resetting at +284bp 2020-6-30 is bid at 24.96 and appears to be $0.53 rich.<\/p>\n

\"impVol_FTS_150522\"<\/a>
Click for Big<\/i><\/div>\n

FTS.PR.H, with a spread of +145bp, and bid at 16.07, looks $1.13 cheap and resets 2015-6-1. FTS.PR.M, with a spread of +248bp and resetting 2019-12-1, is bid at 25.00 and is $0.69 rich.<\/p>\n

\"pairs_FR_150522\"<\/a>
Click for Big<\/i><\/div>\n

Investment-grade pairs predict an average over the next five-odd years of about 0.30%, including the TRP.PR.A \/ TRP.PR.F at -0.55%. On the junk side, the FFH.PR.E \/ FFH.PR.F pair is at -1.18%.<\/p>\n

\"pairs_FF_150522\"<\/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>\n0.3028 %<\/td>\n2,290.5<\/td>\n<\/tr>\n
FixedFloater<\/td>\n0.00 %<\/td>\n0.00 %<\/td>\n0<\/td>\n0.00<\/td>\n0<\/td>\n0.3028 %<\/td>\n4,004.9<\/td>\n<\/tr>\n
Floater<\/td>\n3.17 %<\/td>\n3.33 %<\/td>\n53,861<\/td>\n18.87<\/td>\n4<\/td>\n0.3028 %<\/td>\n2,435.0<\/td>\n<\/tr>\n
OpRet<\/td>\n4.45 %<\/td>\n-8.74 %<\/td>\n33,209<\/td>\n0.11<\/td>\n2<\/td>\n0.0792 %<\/td>\n2,779.1<\/td>\n<\/tr>\n
SplitShare<\/td>\n4.60 %<\/td>\n4.77 %<\/td>\n63,567<\/td>\n3.35<\/td>\n3<\/td>\n-0.0269 %<\/td>\n3,240.1<\/td>\n<\/tr>\n
Interest-Bearing<\/td>\n0.00 %<\/td>\n0.00 %<\/td>\n0<\/td>\n0.00<\/td>\n0<\/td>\n0.0792 %<\/td>\n2,541.2<\/td>\n<\/tr>\n
Perpetual-Premium<\/td>\n5.46 %<\/td>\n2.54 %<\/td>\n63,683<\/td>\n0.08<\/td>\n18<\/td>\n0.0349 %<\/td>\n2,517.8<\/td>\n<\/tr>\n
Perpetual-Discount<\/td>\n5.06 %<\/td>\n5.06 %<\/td>\n117,647<\/td>\n15.37<\/td>\n15<\/td>\n0.0112 %<\/td>\n2,782.3<\/td>\n<\/tr>\n
FixedReset<\/td>\n4.41 %<\/td>\n3.80 %<\/td>\n271,221<\/td>\n16.02<\/td>\n86<\/td>\n-0.0239 %<\/td>\n2,413.3<\/td>\n<\/tr>\n
Deemed-Retractible<\/td>\n4.94 %<\/td>\n3.49 %<\/td>\n107,955<\/td>\n0.83<\/td>\n35<\/td>\n-0.0389 %<\/td>\n2,635.3<\/td>\n<\/tr>\n
FloatingReset<\/td>\n2.56 %<\/td>\n2.92 %<\/td>\n57,844<\/td>\n6.16<\/td>\n7<\/td>\n0.0852 %<\/td>\n2,335.3<\/td>\n<\/tr>\n<\/table>\n\n\n\n\n\n\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
MFC.PR.M<\/td>\nFixedReset<\/td>\n-2.36 %<\/td>\nYTW SCENARIO
\nMaturity Type : Hard Maturity
\nMaturity Date\t: 2025-01-31
\nMaturity Price : 25.00
\nEvaluated at bid price : 23.97
\nBid-YTW : 4.18 %<\/td>\n<\/tr>\n
BAM.PR.X<\/td>\nFixedReset<\/td>\n-2.15 %<\/td>\nYTW SCENARIO
\nMaturity Type : Limit Maturity
\nMaturity Date\t: 2045-05-22
\nMaturity Price : 18.20
\nEvaluated at bid price : 18.20
\nBid-YTW : 4.30 %<\/td>\n<\/tr>\n
ENB.PR.D<\/td>\nFixedReset<\/td>\n-1.62 %<\/td>\nYTW SCENARIO
\nMaturity Type : Limit Maturity
\nMaturity Date\t: 2045-05-22
\nMaturity Price : 18.78
\nEvaluated at bid price : 18.78
\nBid-YTW : 4.73 %<\/td>\n<\/tr>\n
ENB.PR.P<\/td>\nFixedReset<\/td>\n-1.42 %<\/td>\nYTW SCENARIO
\nMaturity Type : Limit Maturity
\nMaturity Date\t: 2045-05-22
\nMaturity Price : 19.45
\nEvaluated at bid price : 19.45
\nBid-YTW : 4.74 %<\/td>\n<\/tr>\n
SLF.PR.A<\/td>\nDeemed-Retractible<\/td>\n-1.36 %<\/td>\nYTW SCENARIO
\nMaturity Type : Hard Maturity
\nMaturity Date\t: 2025-01-31
\nMaturity Price : 25.00
\nEvaluated at bid price : 24.01
\nBid-YTW : 5.40 %<\/td>\n<\/tr>\n
TRP.PR.C<\/td>\nFixedReset<\/td>\n-1.07 %<\/td>\nYTW SCENARIO
\nMaturity Type : Limit Maturity
\nMaturity Date\t: 2045-05-22
\nMaturity Price : 17.61
\nEvaluated at bid price : 17.61
\nBid-YTW : 3.84 %<\/td>\n<\/tr>\n
RY.PR.M<\/td>\nFixedReset<\/td>\n-1.03 %<\/td>\nYTW SCENARIO
\nMaturity Type : Limit Maturity
\nMaturity Date\t: 2045-05-22
\nMaturity Price : 22.75
\nEvaluated at bid price : 24.00
\nBid-YTW : 3.80 %<\/td>\n<\/tr>\n
ENB.PR.Y<\/td>\nFixedReset<\/td>\n-1.03 %<\/td>\nYTW SCENARIO
\nMaturity Type : Limit Maturity
\nMaturity Date\t: 2045-05-22
\nMaturity Price : 19.25
\nEvaluated at bid price : 19.25
\nBid-YTW : 4.68 %<\/td>\n<\/tr>\n
MFC.PR.F<\/td>\nFixedReset<\/td>\n1.12 %<\/td>\nYTW SCENARIO
\nMaturity Type : Hard Maturity
\nMaturity Date\t: 2025-01-31
\nMaturity Price : 25.00
\nEvaluated at bid price : 19.01
\nBid-YTW : 5.97 %<\/td>\n<\/tr>\n
FTS.PR.G<\/td>\nFixedReset<\/td>\n1.40 %<\/td>\nYTW SCENARIO
\nMaturity Type : Limit Maturity
\nMaturity Date\t: 2045-05-22
\nMaturity Price : 21.42
\nEvaluated at bid price : 21.75
\nBid-YTW : 3.81 %<\/td>\n<\/tr>\n
TRP.PR.B<\/td>\nFixedReset<\/td>\n1.91 %<\/td>\nYTW SCENARIO
\nMaturity Type : Limit Maturity
\nMaturity Date\t: 2045-05-22
\nMaturity Price : 16.00
\nEvaluated at bid price : 16.00
\nBid-YTW : 3.76 %<\/td>\n<\/tr>\n
SLF.PR.G<\/td>\nFixedReset<\/td>\n2.56 %<\/td>\nYTW SCENARIO
\nMaturity Type : Hard Maturity
\nMaturity Date\t: 2025-01-31
\nMaturity Price : 25.00
\nEvaluated at bid price : 18.00
\nBid-YTW : 6.52 %<\/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
BMO.PR.T<\/td>\nFixedReset<\/td>\n128,880<\/td>\nDesjardins crossed blocks of 50,000 and 11,000, both at 24.72. Nesbitt crossed 40,000 at the same price.
\nYTW SCENARIO
\nMaturity Type : Limit Maturity
\nMaturity Date\t: 2045-05-22
\nMaturity Price : 23.09
\nEvaluated at bid price : 24.62
\nBid-YTW : 3.39 %<\/td>\n<\/tr>\n
TD.PF.B<\/td>\nFixedReset<\/td>\n104,491<\/td>\nTD crossed blocks of 24,700 and 25,000 at 24.50. Desjardins crossed blocks of 21,700 and 10,500 at the same price.
\nYTW SCENARIO
\nMaturity Type : Limit Maturity
\nMaturity Date\t: 2045-05-22
\nMaturity Price : 23.03
\nEvaluated at bid price : 24.45
\nBid-YTW : 3.45 %<\/td>\n<\/tr>\n
IFC.PR.C<\/td>\nFixedReset<\/td>\n57,304<\/td>\nNesbitt crossed 50,000 at 24.80.
\nYTW SCENARIO
\nMaturity Type : Hard Maturity
\nMaturity Date\t: 2025-01-31
\nMaturity Price : 25.00
\nEvaluated at bid price : 24.75
\nBid-YTW : 4.03 %<\/td>\n<\/tr>\n
TD.PF.D<\/td>\nFixedReset<\/td>\n57,258<\/td>\nTD crossed 50,000 at 24.90.
\nYTW SCENARIO
\nMaturity Type : Limit Maturity
\nMaturity Date\t: 2045-05-22
\nMaturity Price : 23.09
\nEvaluated at bid price : 24.84
\nBid-YTW : 3.76 %<\/td>\n<\/tr>\n
CM.PR.Q<\/td>\nFixedReset<\/td>\n52,190<\/td>\nScotia crossed 25,000 at 25.00.
\nYTW SCENARIO
\nMaturity Type : Limit Maturity
\nMaturity Date\t: 2045-05-22
\nMaturity Price : 23.15
\nEvaluated at bid price : 25.00
\nBid-YTW : 3.73 %<\/td>\n<\/tr>\n
ENB.PR.N<\/td>\nFixedReset<\/td>\n51,912<\/td>\nScotia crossed 40,000 at 20.20.
\nYTW SCENARIO
\nMaturity Type : Limit Maturity
\nMaturity Date\t: 2045-05-22
\nMaturity Price : 20.13
\nEvaluated at bid price : 20.13
\nBid-YTW : 4.73 %<\/td>\n<\/tr>\n
There were 32 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
MFC.PR.M<\/td>\nFixedReset<\/td>\nQuote: 23.97 – 24.60
\nSpot Rate : 0.6300
\nAverage : 0.4011<\/p>\n

YTW SCENARIO
\nMaturity Type : Hard Maturity
\nMaturity Date\t: 2025-01-31
\nMaturity Price : 25.00
\nEvaluated at bid price : 23.97
\nBid-YTW : 4.18 %<\/td>\n<\/tr>\n

RY.PR.M<\/td>\nFixedReset<\/td>\nQuote: 24.00 – 24.70
\nSpot Rate : 0.7000
\nAverage : 0.5309<\/p>\n

YTW SCENARIO
\nMaturity Type : Limit Maturity
\nMaturity Date\t: 2045-05-22
\nMaturity Price : 22.75
\nEvaluated at bid price : 24.00
\nBid-YTW : 3.80 %<\/td>\n<\/tr>\n

BAM.PF.D<\/td>\nPerpetual-Discount<\/td>\nQuote: 23.28 – 23.65
\nSpot Rate : 0.3700
\nAverage : 0.2162<\/p>\n

YTW SCENARIO
\nMaturity Type : Limit Maturity
\nMaturity Date\t: 2045-05-22
\nMaturity Price : 22.97
\nEvaluated at bid price : 23.28
\nBid-YTW : 5.33 %<\/td>\n<\/tr>\n

ENB.PR.P<\/td>\nFixedReset<\/td>\nQuote: 19.45 – 19.74
\nSpot Rate : 0.2900
\nAverage : 0.1751<\/p>\n

YTW SCENARIO
\nMaturity Type : Limit Maturity
\nMaturity Date\t: 2045-05-22
\nMaturity Price : 19.45
\nEvaluated at bid price : 19.45
\nBid-YTW : 4.74 %<\/td>\n<\/tr>\n

BAM.PR.X<\/td>\nFixedReset<\/td>\nQuote: 18.20 – 18.53
\nSpot Rate : 0.3300
\nAverage : 0.2252<\/p>\n

YTW SCENARIO
\nMaturity Type : Limit Maturity
\nMaturity Date\t: 2045-05-22
\nMaturity Price : 18.20
\nEvaluated at bid price : 18.20
\nBid-YTW : 4.30 %<\/td>\n<\/tr>\n

CU.PR.D<\/td>\nPerpetual-Discount<\/td>\nQuote: 24.92 – 25.33
\nSpot Rate : 0.4100
\nAverage : 0.3475<\/p>\n

YTW SCENARIO
\nMaturity Type : Limit Maturity
\nMaturity Date\t: 2045-05-22
\nMaturity Price : 24.45
\nEvaluated at bid price : 24.92
\nBid-YTW : 4.91 %<\/td>\n<\/tr>\n<\/table>\n","protected":false},"excerpt":{"rendered":"

Inflation picked up a little in the US: The U.S. cost of living excluding what households pay for food and fuel climbed more than forecast in April, indicating inflation is gravitating toward the Federal Reserve\u2019s …<\/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-29153","post","type-post","status-publish","format-standard","hentry","category-market-action"],"_links":{"self":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts\/29153","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=29153"}],"version-history":[{"count":0,"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts\/29153\/revisions"}],"wp:attachment":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=29153"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=29153"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=29153"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}