March 27, 2014

The world is about to end – banks are competing on price:

Just one week after Jim Flaherty stepped down, Bank of Montreal is shaking up the mortgage market, aggressively cutting its five-year rate to levels that caused the former finance minister to intervene last year.

BMO is now offering five-year fixed mortgages at 2.99 per cent, slashing its rate from 3.49 per cent. While that’s not the lowest rate in the market, BMO is the first big bank to move below the sensitive 3-per-cent threshold.

The last time a Canadian bank’s mortgage rates fell this low, in March of 2013, Mr. Flaherty stepped in and publicly called for “responsible lending” because he worried about an overheated housing market.

BMO’s rate cut comes after Toronto-Dominion Bank lowered its four-year rate to 2.97 per cent earlier in March. Last week, shortly after Mr. Flaherty stepped down, Bank of Nova Scotia also slashed its mortgage rates, and instituted a special 2.94-per-cent four-year rate.

At least one credit union also moved its five-year rate to 2.99 per cent in February.

Meanwhile, the Feds are defending their data:

Federal Employment Minister Jason Kenney defended his government’s use of Kijiji, but acknowledged there are technical concerns with the data including the need to weed out repeated postings for the same position.

“People are laughing at Kijiji, but it’s the new classified ads,” he told CTV’s Power Play. “I would just invite some of these economists – who sit in front of their spreadsheets of inadequate data trying to figure out the world – I wish they would actually go out into the real world and talk to employers like I do all the time.”

Mr. Kenney said critics should recognize the challenge of producing reliable labour data in a world of online job boards.

Let’s all square our rots for a good boo-hoo-hoo about how analysis is hard. It’s easier than reviewing the strengths and weaknesses of our analysis.

David Parkinson of the Globe points out:

Finance’s dramatic numbers don’t pass a basic sniff test. Specifically, if Canada really was suffering from acute skills shortages across a broad swath of the economy, it would manifest in significant upward pressure on wages. Those wage pressures, in general, simply aren’t there.

Year-over-year increases in Canadians’ average weekly wages have trended downward over much of the past two years, even as the country added more than 400,000 jobs. Average year-over-year wage growth last year was just 2 per cent, well below the 10-year average of 2.9 per cent and the five-year average of 2.5 per cent.

That said, there is certainly evidence of pockets where wage pressures are significant, indicative of possible skills shortages.

In Alberta, average weekly wages were up 4.6 per cent year over year in December. Two other oil-industry-heavy provinces, Newfoundland and Saskatchewan, posted increases of 3.8 per cent and 3.6 per cent, respectively. Skills- and education-heavy segments of the economy – such as business management; professional, scientific and technical services; mining and oil and gas extraction; and construction – have, indeed, shown some of the biggest year-over year wage gains.

It was a soft day for the Canadian preferred share market, with PerpetualDiscounts down 4bp, FixedResets off 1bp and DeemedRetractibles flat. Given the overall move, the Performance Highlights table is surprisingly lengthy, with a fair number of losers. Volume was average, but with some very nice block trades.

HIMIPref™ Preferred Indices
These values reflect the December 2008 revision of the HIMIPref™ Indices

Values are provisional and are finalized monthly
Index Mean
Current
Yield
(at bid)
Median
YTW
Median
Average
Trading
Value
Median
Mod Dur
(YTW)
Issues Day’s Perf. Index Value
Ratchet 0.00 % 0.00 % 0 0.00 0 -0.2572 % 2,419.5
FixedFloater 4.69 % 4.29 % 34,447 17.73 1 0.0494 % 3,619.2
Floater 3.01 % 3.09 % 50,749 19.48 4 -0.2572 % 2,612.4
OpRet 4.65 % -0.88 % 100,053 0.23 3 -0.0258 % 2,687.3
SplitShare 4.81 % 4.11 % 67,229 4.29 5 -0.0159 % 3,083.9
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.0258 % 2,457.2
Perpetual-Premium 5.64 % -5.65 % 93,436 0.08 11 -0.0823 % 2,364.5
Perpetual-Discount 5.44 % 5.47 % 121,179 14.56 26 -0.0432 % 2,449.4
FixedReset 4.69 % 3.53 % 230,414 4.33 79 -0.0069 % 2,516.5
Deemed-Retractible 5.05 % 2.84 % 161,477 0.33 42 0.0029 % 2,471.1
FloatingReset 2.61 % 2.56 % 194,631 4.29 5 0.1041 % 2,453.9
Performance Highlights
Issue Index Change Notes
IGM.PR.B Perpetual-Premium -1.59 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-12-31
Maturity Price : 25.00
Evaluated at bid price : 25.44
Bid-YTW : 5.38 %
BAM.PR.K Floater -1.13 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-03-27
Maturity Price : 16.65
Evaluated at bid price : 16.65
Bid-YTW : 3.15 %
MFC.PR.B Deemed-Retractible -1.08 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.02
Bid-YTW : 6.22 %
BAM.PR.M Perpetual-Discount -1.07 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-03-27
Maturity Price : 20.41
Evaluated at bid price : 20.41
Bid-YTW : 5.86 %
GWO.PR.N FixedReset -1.03 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.15
Bid-YTW : 4.49 %
MFC.PR.F FixedReset 1.16 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.76
Bid-YTW : 4.46 %
Volume Highlights
Issue Index Shares
Traded
Notes
TRP.PR.A FixedReset 856,484 RBC crossed two blocks of 427,400 each, both at 23.29.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-03-27
Maturity Price : 22.69
Evaluated at bid price : 23.30
Bid-YTW : 3.92 %
MFC.PR.J FixedReset 201,210 Desjardins crossed blocks of 137,500 and 50,000, both at 25.50.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-03-19
Maturity Price : 25.00
Evaluated at bid price : 25.44
Bid-YTW : 3.56 %
SLF.PR.F FixedReset 200,100 RBC crossed blocks of 70,000 shares, 50,000 and 74,600, all at 25.33.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-06-30
Maturity Price : 25.00
Evaluated at bid price : 25.27
Bid-YTW : 1.52 %
RY.PR.L FixedReset 114,040 RBC crossed blocks of 49,000 and 20,000, both at 26.45. TD crossed 35,000 at the same price.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2019-02-24
Maturity Price : 25.00
Evaluated at bid price : 26.38
Bid-YTW : 3.14 %
RY.PR.B Deemed-Retractible 101,684 RBC crossed blocks of 75,000 and 20,000, both at 25.60.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-08-24
Maturity Price : 25.25
Evaluated at bid price : 25.63
Bid-YTW : 2.01 %
RY.PR.Z FixedReset 99,610 RBC crossed 85,000 at 25.50.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2019-05-24
Maturity Price : 25.00
Evaluated at bid price : 25.51
Bid-YTW : 3.71 %
There were 32 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
BAM.PR.G FixedFloater Quote: 20.26 – 20.90
Spot Rate : 0.6400
Average : 0.4828

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-03-27
Maturity Price : 25.00
Evaluated at bid price : 20.26
Bid-YTW : 4.29 %

PWF.PR.A Floater Quote: 19.44 – 19.99
Spot Rate : 0.5500
Average : 0.4058

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-03-27
Maturity Price : 19.44
Evaluated at bid price : 19.44
Bid-YTW : 2.72 %

GWO.PR.P Deemed-Retractible Quote: 24.97 – 25.30
Spot Rate : 0.3300
Average : 0.1985

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.97
Bid-YTW : 5.44 %

TRP.PR.B FixedReset Quote: 20.15 – 20.59
Spot Rate : 0.4400
Average : 0.3206

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-03-27
Maturity Price : 20.15
Evaluated at bid price : 20.15
Bid-YTW : 3.82 %

MFC.PR.B Deemed-Retractible Quote: 22.02 – 22.34
Spot Rate : 0.3200
Average : 0.2170

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.02
Bid-YTW : 6.22 %

MFC.PR.K FixedReset Quote: 24.49 – 24.82
Spot Rate : 0.3300
Average : 0.2276

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.49
Bid-YTW : 4.15 %

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