June 24, 2015

Not much going on. TD issued sub-debt last week:

The Toronto-Dominion Bank (“TD” or the “Bank”) today announced a domestic public offering of $1.5 billion of medium term notes (non-viability contingent capital (NVCC)) constituting subordinated indebtedness of the Bank (the “Notes”). The Notes will be issued and sold through a dealer syndicate led by TD Securities Inc. The Notes will qualify as Tier 2 capital of the Bank.

The Notes are expected to be issued on June 24, 2015 and will bear interest at a fixed rate of 2.692% per annum (paid semi-annually) until June 24, 2020, and at the three-month bankers’ acceptance rate plus 1.21% thereafter (paid quarterly) until maturity on June 24, 2025.

The Bank may, at its option, with the prior approval of the Superintendent of Financial Institutions (Canada), redeem the Notes on or after June 24, 2020, in whole or in part, at par plus accrued and unpaid interest on not more than 60 nor less than 30 days’ notice to holders. Net proceeds from the issuance of the Notes will be used for general corporate purposes.

The potential for getting rid of supply management is increasing:

Canada’s protected dairy and poultry industries are in the crosshairs of the United States and other farm export powers as momentum builds toward a massive Pacific Rim trade deal.

Negotiations on the Trans-Pacific Partnership (TPP) are expected to resume shortly, with a deal possible as early as August.

The breakthrough came Wednesday when the U.S. Senate voted 60-38 to give President Barack Obama unfettered power to negotiate new trade deals.

Japan, Canada and other countries have resisted making final concessions in politically touchy areas, such as agriculture, until Congress gave Mr. Obama those trade negotiating powers.

The price of entry for Canada – one of 12 countries in the TPP talks – is expected to be a surge of duty-free dairy and chicken imports from countries such as the U.S., Australia and New Zealand.

Price of entry? That’s not a price – that’s a pay-off!

Manulife Financial Corporation, proud issuer of MFC.PR.B, MFC.PR.C, MFC.PR.F, MFC.PR.G, MFC.PR.H, MFC.PR.I, MFC.PR.J, MFC.PR.K, MFC.PR.L, MFC.PR.M and MFC.PR.N, was confirmed at Pfd-2(high) by DBRS:

DBRS Limited (DBRS) has today confirmed its ratings on Manulife Financial Corporation (Manulife or the Company) and its affiliates including The Manufacturers Life Insurance Company, its primary operating company. All trends are Stable.

The ratings reflect the Company’s strong position in a number of geographic and product markets including Canada, the United States through the John Hancock brand and in the fast-growing Asian market through the Manulife brand. The Company is also well diversified by customer, distribution channel and product line. Risk management policies and procedures are thorough and supported with advanced modelling techniques. The Company’s general account has a diversified high-quality asset portfolio. Legacy issues associated with the Company’s prior product designs continue to be a potential source of adverse reserve development, given the uncertainty in macroeconomic and regulatory environments and potential adverse policyholder behaviour. DBRS regards the Company’s reduction of market-related risks over the past few years as having been critical to maintaining its high rating. DBRS also notes that, under its methodology, with Manulife’s unexceptional financial risk metrics, it is the Company’s franchise strength and business which provide most of the rating strength.

The Company has set out a strategy to build more interactions directly with the end purchaser to augment and enhance its existing distribution channels. Manulife is in the process of implementing this strategy, which entails a significant investment in technology and new processes as well as an accompanying cultural shift. This change presents both new opportunities and risks for the organization.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts down 45bp, FixedResets gaining 2bp and DeemedRetractibles off 10bp. The Performance Highlights table is very lengthy, with a lot of volatility amongst the (misleadingly calm overall) FixedResets. Volume was average.

PerpetualDiscounts now yield 5.20%, equivalent to 6.76% interest at the standard equivalency factor of 1.3x. Long corporates now yield 4.15%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 260bp, a significant widening from the 250bp reported June 10.

For as long as the FixedReset market is so violently unsettled, I’ll keep publishing updates of the more interesting and meaningful series of FixedResets’ Implied Volatilities. This doesn’t 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.

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

Here’s TRP:

impVol_TRP_150624
Click for Big

TRP.PR.A, which resets 2019-12-31 at +192, is bid at 20.30 to be $0.76 rich, while TRP.PR.C, resetting 2016-1-30 at +154, is $0.76 cheap at its bid price of 16.20.

impVol_MFC_150624
Click for Big

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). The lowest spread issue, MFC.PR.F, is again noticeably off the line defined by the higher-spread issues.

Most expensive is MFC.PR.L, resetting at +216bp on 2019-6-19, bid at 22.77 to be $0.73 rich, while MFC.PR.M, resetting at +236bp on 2019-12-19, is bid at 22.20 to be $0.87 cheap.

impVol_BAM_150624
Click for Big

The cheapest issue relative to its peers is BAM.PR.R, resetting at +230bp on 2016-6-30, bid at 19.05 to be $1.15 cheap. BAM.PF.E, resetting at +255bp 2020-3-31 is bid at 22.85 and appears to be $1.14 rich.

impVol_FTS_150624
Click for Big

FTS.PR.H, with a spread of +145bp, and bid at 16.41, looks $0.40 cheap and resets 2020-6-1. FTS.PR.K, with a spread of +205bp and resetting 2019-3-1, is bid at 21.50 and is $0.49 rich.

pairs_FR_150624
Click for Big

Investment-grade pairs predict an average three-month bill yield over the next five-odd years of about 0.35%, including the outliers TRP.PR.A / TRP.PR.F at -0.38% and FTS.PR.H / FTS.PR.I at +1.15%. On the junk side there are four outliers: FFH.PR.E / FFH.PR.F at -0.88%; and BRF.PR.A / BRF.PR.B at -0.69%.

pairs_FF_150624
Click for Big

Shall we just say that this exhibits a high level of confidence in the continued rapacity of Canadian banks?

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 -1.1976 % 2,220.5
FixedFloater 0.00 % 0.00 % 0 0.00 0 -1.1976 % 3,882.4
Floater 3.49 % 3.49 % 62,479 18.55 3 -1.1976 % 2,360.5
OpRet 4.78 % -10.32 % 22,806 0.08 1 0.0000 % 2,785.6
SplitShare 4.58 % 4.62 % 72,023 3.26 3 -0.4660 % 3,254.5
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0000 % 2,547.2
Perpetual-Premium 5.48 % 5.16 % 62,005 4.96 19 -0.1620 % 2,512.7
Perpetual-Discount 5.25 % 5.20 % 119,905 15.06 15 -0.4467 % 2,679.0
FixedReset 4.56 % 3.83 % 233,439 16.32 88 0.0196 % 2,325.4
Deemed-Retractible 5.03 % 3.30 % 112,119 0.89 34 -0.0970 % 2,611.1
FloatingReset 2.49 % 2.96 % 54,003 6.09 9 0.0739 % 2,334.9
Performance Highlights
Issue Index Change Notes
TD.PF.A FixedReset -4.39 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-24
Maturity Price : 21.67
Evaluated at bid price : 22.00
Bid-YTW : 3.86 %
BIP.PR.A FixedReset -2.91 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-24
Maturity Price : 22.47
Evaluated at bid price : 23.35
Bid-YTW : 4.82 %
NA.PR.W FixedReset -2.52 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-24
Maturity Price : 21.94
Evaluated at bid price : 22.42
Bid-YTW : 3.78 %
MFC.PR.M FixedReset -2.42 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.20
Bid-YTW : 5.15 %
GWO.PR.N FixedReset -2.31 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 16.92
Bid-YTW : 7.10 %
BAM.PR.M Perpetual-Discount -1.76 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-24
Maturity Price : 20.69
Evaluated at bid price : 20.69
Bid-YTW : 5.77 %
IFC.PR.A FixedReset -1.63 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.26
Bid-YTW : 6.45 %
BAM.PF.F FixedReset -1.54 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-24
Maturity Price : 22.69
Evaluated at bid price : 23.69
Bid-YTW : 4.15 %
BAM.PR.K Floater -1.52 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-24
Maturity Price : 14.28
Evaluated at bid price : 14.28
Bid-YTW : 3.49 %
GWO.PR.H Deemed-Retractible -1.40 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.17
Bid-YTW : 5.88 %
MFC.PR.N FixedReset -1.38 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.08
Bid-YTW : 5.14 %
PWF.PR.P FixedReset -1.37 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-24
Maturity Price : 18.00
Evaluated at bid price : 18.00
Bid-YTW : 3.74 %
POW.PR.D Perpetual-Discount -1.36 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-24
Maturity Price : 23.71
Evaluated at bid price : 24.02
Bid-YTW : 5.20 %
RY.PR.H FixedReset -1.35 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-24
Maturity Price : 22.14
Evaluated at bid price : 22.69
Bid-YTW : 3.71 %
PWF.PR.T FixedReset -1.20 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-24
Maturity Price : 23.19
Evaluated at bid price : 24.71
Bid-YTW : 3.48 %
PVS.PR.B SplitShare -1.15 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2019-01-10
Maturity Price : 25.00
Evaluated at bid price : 24.91
Bid-YTW : 4.55 %
BAM.PR.N Perpetual-Discount -1.14 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-24
Maturity Price : 20.75
Evaluated at bid price : 20.75
Bid-YTW : 5.76 %
BMO.PR.T FixedReset -1.10 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-24
Maturity Price : 22.02
Evaluated at bid price : 22.50
Bid-YTW : 3.73 %
BAM.PR.C Floater -1.05 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-24
Maturity Price : 14.10
Evaluated at bid price : 14.10
Bid-YTW : 3.53 %
ELF.PR.G Perpetual-Discount -1.05 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-24
Maturity Price : 22.28
Evaluated at bid price : 22.56
Bid-YTW : 5.35 %
BAM.PR.B Floater -1.02 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-24
Maturity Price : 14.52
Evaluated at bid price : 14.52
Bid-YTW : 3.43 %
POW.PR.G Perpetual-Premium -1.01 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2020-04-15
Maturity Price : 25.25
Evaluated at bid price : 25.42
Bid-YTW : 5.34 %
BAM.PF.D Perpetual-Discount -1.01 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-24
Maturity Price : 21.25
Evaluated at bid price : 21.53
Bid-YTW : 5.71 %
ENB.PF.E FixedReset 1.01 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-24
Maturity Price : 20.00
Evaluated at bid price : 20.00
Bid-YTW : 4.85 %
CM.PR.O FixedReset 1.07 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-24
Maturity Price : 22.12
Evaluated at bid price : 22.65
Bid-YTW : 3.80 %
ENB.PF.G FixedReset 1.10 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-24
Maturity Price : 20.17
Evaluated at bid price : 20.17
Bid-YTW : 4.84 %
MFC.PR.B Deemed-Retractible 1.16 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.60
Bid-YTW : 6.02 %
MFC.PR.L FixedReset 1.20 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.77
Bid-YTW : 4.67 %
ENB.PR.D FixedReset 1.20 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-24
Maturity Price : 17.65
Evaluated at bid price : 17.65
Bid-YTW : 4.93 %
BAM.PF.E FixedReset 1.33 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-24
Maturity Price : 22.20
Evaluated at bid price : 22.85
Bid-YTW : 4.07 %
ENB.PF.A FixedReset 1.37 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-24
Maturity Price : 20.00
Evaluated at bid price : 20.00
Bid-YTW : 4.83 %
ENB.PR.B FixedReset 1.39 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-24
Maturity Price : 17.50
Evaluated at bid price : 17.50
Bid-YTW : 4.97 %
ENB.PR.Y FixedReset 1.51 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-24
Maturity Price : 18.13
Evaluated at bid price : 18.13
Bid-YTW : 4.88 %
BAM.PR.R FixedReset 1.55 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-24
Maturity Price : 19.05
Evaluated at bid price : 19.05
Bid-YTW : 4.46 %
TRP.PR.E FixedReset 1.73 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-24
Maturity Price : 22.28
Evaluated at bid price : 22.94
Bid-YTW : 3.85 %
TRP.PR.D FixedReset 2.32 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-24
Maturity Price : 22.05
Evaluated at bid price : 22.51
Bid-YTW : 3.89 %
BAM.PR.T FixedReset 2.90 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-24
Maturity Price : 20.23
Evaluated at bid price : 20.23
Bid-YTW : 4.24 %
HSE.PR.A FixedReset 2.96 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-24
Maturity Price : 15.98
Evaluated at bid price : 15.98
Bid-YTW : 4.39 %
CM.PR.P FixedReset 4.69 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-24
Maturity Price : 21.86
Evaluated at bid price : 22.30
Bid-YTW : 3.77 %
Volume Highlights
Issue Index Shares
Traded
Notes
NA.PR.S FixedReset 108,250 TD crossed 50,000 at 24.35; Desjardins crossed 57,000 at 24.30.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-24
Maturity Price : 22.91
Evaluated at bid price : 24.10
Bid-YTW : 3.59 %
ENB.PR.F FixedReset 106,359 Desjardins crossed 100,300 at 18.20.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-24
Maturity Price : 18.16
Evaluated at bid price : 18.16
Bid-YTW : 4.97 %
ENB.PR.D FixedReset 83,224 Scotia crossed 40,000 at 17.72 and 24,700 at 17.70.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-24
Maturity Price : 17.65
Evaluated at bid price : 17.65
Bid-YTW : 4.93 %
MFC.PR.M FixedReset 76,729 Scotia crossed 70,000 at 22.80.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.20
Bid-YTW : 5.15 %
MFC.PR.K FixedReset 75,099 Scotia crossed 70,000 at 22.69.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.70
Bid-YTW : 4.64 %
ENB.PR.B FixedReset 72,462 Scotia crossed 50,800 at 17.50.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-24
Maturity Price : 17.50
Evaluated at bid price : 17.50
Bid-YTW : 4.97 %
There were 32 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
TD.PF.A FixedReset Quote: 22.00 – 23.24
Spot Rate : 1.2400
Average : 0.7818

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-24
Maturity Price : 21.67
Evaluated at bid price : 22.00
Bid-YTW : 3.86 %

MFC.PR.M FixedReset Quote: 22.20 – 22.92
Spot Rate : 0.7200
Average : 0.4451

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.20
Bid-YTW : 5.15 %

BAM.PR.C Floater Quote: 14.10 – 14.89
Spot Rate : 0.7900
Average : 0.6092

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-24
Maturity Price : 14.10
Evaluated at bid price : 14.10
Bid-YTW : 3.53 %

PWF.PR.T FixedReset Quote: 24.71 – 25.34
Spot Rate : 0.6300
Average : 0.4563

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-24
Maturity Price : 23.19
Evaluated at bid price : 24.71
Bid-YTW : 3.48 %

NA.PR.W FixedReset Quote: 22.42 – 22.95
Spot Rate : 0.5300
Average : 0.3772

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-24
Maturity Price : 21.94
Evaluated at bid price : 22.42
Bid-YTW : 3.78 %

GWO.PR.N FixedReset Quote: 16.92 – 17.35
Spot Rate : 0.4300
Average : 0.2956

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 16.92
Bid-YTW : 7.10 %

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