{"id":4059,"date":"2008-11-19T15:16:21","date_gmt":"2008-11-19T19:16:21","guid":{"rendered":"http:\/\/www.prefblog.com\/?p=4059"},"modified":"2008-11-19T15:16:21","modified_gmt":"2008-11-19T19:16:21","slug":"sloppy-sloppy-markets","status":"publish","type":"post","link":"https:\/\/prefblog.com\/?p=4059","title":{"rendered":"Sloppy, Sloppy Markets!"},"content":{"rendered":"

Assiduous readers will be well aware of my disdain for market timing<\/a>. The market goes up, the market goes down … the characteristics of the asset class don’t change very quickly and the steady drip, drip, drip of dividends eventually overwhelms the transient excitement of day to day noise<\/a>. You just have to make sure you’re well diversified, invest in companies of good, solid investment grade, don’t get excited … and did I mention diversification? Lightning can strike at any time and you should never be in a position where it can wipe you out.<\/p>\n

Up, down, piffle, that’s what I say!<\/p>\n

But I do get highly annoyed when I see the market behaving in a stupid way. You wan’t to say a proper risk premium is 20bp – that’s fine. You want to say the risk premium should be 1000bp – that’s fine too. I don’t have any problems with that. We all have our individual investment objectives, risk tolerances, views on predicted apocalypses … overall market spreads, their proper levels and interpretation are always open for discussion and analysis<\/a>.<\/p>\n

But let’s not be stupid, OK? Let’s not be like the June 2008 market<\/a> when it appeared that the market assigned a negative value to embedded call options<\/a>. And let’s have similar issues from a single issuer at least trade within shouting distance of each other!<\/p>\n

Almost a year ago, I wrote a post on yield differences<\/a>, amazed that the market for Weston Prefs could be so inefficient. It’s true, of course, that there are fewer players in the Pfd-3 playground and so a certain lack of efficiency is to be expected … but never-the-less, a 34bp spread between the high- and low-yielding Weston Pref was rather extreme. I also looked at the spreads on investment-grade issuers at that time, just to show what a more efficient market looked like.<\/p>\n

And now I’m going to update that table to last night’s close:<\/p>\n

\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n
Yield Spreads of
\nPerpetual Discount Issues
\nof the Same Name<\/td>\n<\/tr>\n
Name<\/td>\nDBRS
\nRating<\/td>\n		Yield
\nRange
\n2007-12-6<\/td>\n		Yield
\nRange
\n2008-11-18<\/td>\n<\/tr>\n
BMO<\/td>\nPfd-1<\/td>\nN\/A<\/td>\n29bp<\/td>\n<\/tr>\n
BNS<\/td>\nPfd-1<\/td>\n6bp<\/td>\n32bp<\/td>\n<\/tr>\n
CM<\/td>\nPfd-1<\/td>\n11bp<\/td>\n47bp<\/td>\n<\/tr>\n
CU<\/td>\nPfd-2(high)<\/td>\nN\/A<\/td>\n25bp<\/td>\n<\/tr>\n
ELF<\/td>\nPfd-2(low)<\/td>\n3bp<\/td>\n25bp<\/td>\n<\/tr>\n
GWO<\/td>\nPfd-1(low)<\/td>\n11bp<\/td>\n121bp<\/td>\n<\/tr>\n
HSB<\/td>\nPfd-1<\/td>\nN\/A<\/td>\n28bp<\/td>\n<\/tr>\n
LB<\/td>\nPfd-3<\/td>\n12bp<\/td>\nN\/A<\/td>\n<\/tr>\n
MFC<\/td>\nPfd-1(low)<\/td>\n1bp<\/td>\n24bp<\/td>\n<\/tr>\n
NA<\/td>\nPfd-1(low)<\/td>\n26bp<\/td>\n48bp<\/td>\n<\/tr>\n
POW<\/td>\nPfd-2(high)<\/td>\n14bp<\/td>\n46bp<\/td>\n<\/tr>\n
PWF<\/td>\nPfd-1(low)<\/td>\n17bp<\/td>\n37bp<\/td>\n<\/tr>\n
RY<\/td>\nPfd-1<\/td>\n11bp<\/td>\n74bp<\/td>\n<\/tr>\n
SLF<\/td>\nPfd-1(low)<\/td>\n9bp<\/td>\n14bp<\/td>\n<\/tr>\n
TCA<\/td>\nPfd-2(low)<\/td>\nN\/A<\/td>\n16bp<\/td>\n<\/tr>\n
TD<\/td>\nPfd-1<\/td>\n6bp<\/td>\n15bp<\/td>\n<\/tr>\n
W<\/td>\nPfd-2(low)<\/td>\n17bp<\/td>\n19bp<\/td>\n<\/tr>\n<\/table>\n<\/div>\n

The fund I manage, Malachite Aggressive Preferred Fund<\/a>, has been doing quite a bit of intra-issuer trading in the past several months – I highlighted an example of this for August 2008<\/a>. These wide intra-issuer spreads are symptiomatic of a market starved for liquidity – suppliers of that liquidity can (if patient) very often get an extremely good price for it.<\/p>\n","protected":false},"excerpt":{"rendered":"

Assiduous readers will be well aware of my disdain for market timing. The market goes up, the market goes down … the characteristics of the asset class don’t change very quickly and the steady drip, …<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[13],"tags":[],"class_list":["post-4059","post","type-post","status-publish","format-standard","hentry","category-issue-comments"],"_links":{"self":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts\/4059","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=4059"}],"version-history":[{"count":0,"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts\/4059\/revisions"}],"wp:attachment":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=4059"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=4059"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=4059"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}