{"id":891,"date":"2007-06-02T19:54:00","date_gmt":"2007-06-02T23:54:00","guid":{"rendered":"http:\/\/www.prefblog.com\/?p=891"},"modified":"2007-06-02T19:54:00","modified_gmt":"2007-06-02T23:54:00","slug":"mays-worst-performers","status":"publish","type":"post","link":"https:\/\/prefblog.com\/?p=891","title":{"rendered":"May's Worst Performers"},"content":{"rendered":"

Well, I wanted to do a little attribution analysis for my own purposes and now find that I have the same viewpoint as a publish-or-perish academic: publish everything! If you have a good laundry list, publish that!<\/p>\n

The worst performers of May (of the issues included in the HIMIPref\u2122 Universe) were:<\/p>\n

\n\n\n\n\n\n\n\n\n
Ticker<\/td>\nSector<\/td>\nReturn<\/td>\nProbable Cause<\/td>\n<\/tr>\n
AR.PR.B<\/td>\nScraps<\/td>\n-29.08%<\/td>\nWho cares?<\/td>\n<\/tr>\n
WN.PR.E<\/td>\nPerpetualDiscount (begin)
\nScraps (end)<\/td>\n		-7.70%<\/td>\nCredit<\/td>\n<\/tr>\n
BCE.PR.I<\/td>\nFixFloat<\/td>\n-7.69%<\/td>\nCredit<\/td>\n<\/tr>\n
BCE.PR.R<\/td>\nFixFloat<\/td>\n-7.50%<\/td>\nCredit<\/td>\n<\/tr>\n
CM.PR.J<\/td>\nPerpetualDiscount<\/td>\n-6.96%<\/td>\nRationalization<\/td>\n<\/tr>\n
GWO.PR.I<\/td>\nPerpetualDiscount<\/td>\n-6.63%<\/td>\nRationalization<\/td>\n<\/tr>\n<\/table>\n<\/div>\n

As of May 31, CM.PR.J was quoted at 22.85-90 with a curvePrice<\/a> of 23.06; GWO.PR.I was quoted at 22.83-85, curvePrice 22.86. These issues are very similar, having the same annual coupon and the same credit rating. It is because these issues now appear reasonably\u00a0fairly priced that I have characterized the probable cause as “Rationalization”. However, I could just as easily – and perhaps better\u00a0– characterized the probable cause as simply “Vanishing Liquidity Premium”.<\/p>\n

Let’s have a closer look at those curve Prices:<\/p>\n

\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n
CM.PR.J Monthly Curve Price Comparison<\/td>\n<\/tr>\n
Component<\/td>\nMay 31<\/td>\nApril 30<\/td>\nChange<\/td>\n<\/tr>\n
Price due to base-rate<\/td>\n22.03<\/td>\n\u00a022.36<\/td>\n\u00a0-0.33<\/td>\n<\/tr>\n
Price due to short-term<\/td>\n-0.49<\/td>\n\u00a0-0.21<\/td>\n\u00a0-0.28<\/td>\n<\/tr>\n
Price due to long-term<\/td>\n1.78<\/td>\n\u00a01.32<\/td>\n\u00a0+0.46<\/td>\n<\/tr>\n
Price due to Interest Income<\/td>\n0.00<\/td>\n\u00a00.00<\/td>\n\u00a00.00<\/td>\n<\/tr>\n
Price to to Cumulative Dividends<\/td>\n0.00<\/td>\n\u00a00.00<\/td>\n\u00a00.00<\/td>\n<\/tr>\n
Price due to SplitShareCorp<\/td>\n0.00<\/td>\n\u00a00.00<\/td>\n\u00a00.00<\/td>\n<\/tr>\n
Price due to Retractibility<\/td>\n0.00<\/td>\n\u00a00.00<\/td>\n\u00a00.00<\/td>\n<\/tr>\n
Price due to Credit Spread (2)<\/td>\n0.00<\/td>\n\u00a00.00<\/td>\n\u00a00.00<\/td>\n<\/tr>\n
Price due to Liquidity<\/td>\n0.39<\/td>\n\u00a01.47<\/td>\n\u00a0-1.08<\/td>\n<\/tr>\n
Price due to Floating Rate<\/td>\n0.00<\/td>\n\u00a00.00<\/td>\n\u00a00.00<\/td>\n<\/tr>\n
Price due to Credit Spread (3)<\/td>\n0.00<\/td>\n\u00a00.00<\/td>\n\u00a00.00<\/td>\n<\/tr>\n
Price due to error<\/td>\n0.08<\/td>\n\u00a00.02<\/td>\n\u00a0+0.06<\/td>\n<\/tr>\n
Price due to Credit Spread (High)<\/td>\n0.00<\/td>\n\u00a00.00<\/td>\n\u00a00.00<\/td>\n<\/tr>\n
Price due to Credit Spread (Low)<\/td>\n-0.74<\/td>\n\u00a0-0.61<\/td>\n\u00a0-0.13<\/td>\n<\/tr>\n
Curve Price<\/strong><\/td>\n23.06<\/td>\n\u00a024.35<\/td>\n\u00a0-1.29<\/td>\n<\/tr>\n
Quote<\/strong><\/td>\n22.85-90<\/td>\n\u00a024.56-71<\/td>\n\u00a0-1.71 – -1.81<\/td>\n<\/tr>\n<\/table>\n<\/div>\n

…and…<\/p>\n

\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n
GWO.PR.I\u00a0Monthly Curve Price Comparison<\/td>\n<\/tr>\n
Component<\/td>\nMay 31<\/td>\nApril 30<\/td>\nChange<\/td>\n<\/tr>\n
Price due to base-rate<\/td>\n21.83<\/td>\n\u00a022.34<\/td>\n\u00a0-0.51<\/td>\n<\/tr>\n
Price due to short-term<\/td>\n-0.49<\/td>\n\u00a0-0.21<\/td>\n\u00a0-0.28<\/td>\n<\/tr>\n
Price due to long-term<\/td>\n1.78<\/td>\n\u00a01.32<\/td>\n\u00a0+0.46<\/td>\n<\/tr>\n
Price due to Interest Income<\/td>\n0.00<\/td>\n\u00a00.00<\/td>\n\u00a00.00<\/td>\n<\/tr>\n
Price to to Cumulative Dividends<\/td>\n0.00<\/td>\n\u00a00.00<\/td>\n\u00a00.00<\/td>\n<\/tr>\n
Price due to SplitShareCorp<\/td>\n0.00<\/td>\n\u00a00.00<\/td>\n\u00a00.00<\/td>\n<\/tr>\n
Price due to Retractibility<\/td>\n0.00<\/td>\n\u00a00.00<\/td>\n\u00a00.00<\/td>\n<\/tr>\n
Price due to Credit Spread (2)<\/td>\n0.00<\/td>\n\u00a00.00<\/td>\n\u00a00.00<\/td>\n<\/tr>\n
Price due to Liquidity<\/td>\n0.39<\/td>\n\u00a01.48<\/td>\n\u00a0-1.09<\/td>\n<\/tr>\n
Price due to Floating Rate<\/td>\n0.00<\/td>\n\u00a00.00<\/td>\n\u00a00.00<\/td>\n<\/tr>\n
Price due to Credit Spread (3)<\/td>\n0.00<\/td>\n\u00a00.00<\/td>\n\u00a00.00<\/td>\n<\/tr>\n
Price due to error<\/td>\n0.08<\/td>\n\u00a00.02<\/td>\n\u00a0+0.06<\/td>\n<\/tr>\n
Price due to Credit Spread (High)<\/td>\n0.00<\/td>\n\u00a00.00<\/td>\n\u00a00.00<\/td>\n<\/tr>\n
Price due to Credit Spread (Low)<\/td>\n-0.74<\/td>\n\u00a0-0.62<\/td>\n\u00a0-0.12<\/td>\n<\/tr>\n
Curve Price<\/strong><\/td>\n22.86<\/td>\n\u00a024.34<\/td>\n\u00a0-1.48<\/td>\n<\/tr>\n
Quote<\/strong><\/td>\n22.83-85<\/td>\n\u00a024.75-79<\/td>\n\u00a0-1.92 – -1.94<\/td>\n<\/tr>\n<\/table>\n<\/div>\n

I discussed the yield curve and the collapse of the liquidity premium in the post HIMI Index Performance, May 2007<\/a>:<\/p>\n

One very interesting thing that happened this month is that a lot of the yieldCurvePremiumLiquidity<\/a> disappeared, as shown in this graph<\/a>. I interpret the change in the premium as reflecting a desire by some holders, at least, to get out of the sector in size and quickly; such holders might simply sell their most liquid holdings to adjust portfolio exposures; this will affect the prices of these issues; hence, liquidity will become a lot less expensive. The PerpetualDiscount index is the most liquid of all the sub-indices – it’s dominated by recent issues, apart from anything else – and thus a portion of the decline in this index might be attributed to this factor rather than the intrinsic characteristics of the investment.<\/p>\n

Such a hypothesis gains some support from examination of the changes in the yield curve<\/a>, which I found a little surprising. The long-end hasn’t moved by nearly as much as one might have expected. Note that this graph is of the TAXABLE curve and refers to SPOT YIELDS … therefore, the x-axis shows the yield one might expect on a “stripped dividend”, after tax.<\/p><\/blockquote>\n

Hopefully, the tables above will make my meaning a bit more clear. However, I should advise explicitly that the huge importance of liquidity in the above tables is probably over-stated. It comes out of the math, all right, and I have no problems with the mechanical correctness of the math … but as I’ve re-stated above, liquidity is not distributed homogeneously across the HIMIPref™ universe – it is highly concentrated in the PerpetualDiscount segment and this can lead to a confounding of the analysis.<\/p>\n","protected":false},"excerpt":{"rendered":"

Well, I wanted to do a little attribution analysis for my own purposes and now find that I have the same viewpoint as a publish-or-perish academic: publish everything! If you have a good laundry list, …<\/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-891","post","type-post","status-publish","format-standard","hentry","category-issue-comments"],"_links":{"self":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts\/891","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=891"}],"version-history":[{"count":0,"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts\/891\/revisions"}],"wp:attachment":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=891"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=891"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=891"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}