Wild day on the markets today. A speech by Sharon Kozicki was important:
Bank of Canada deputy governor Sharon Kozicki hinted on Friday that a half-percentage point interest rate increase may be on the table for the central bank’s upcoming rate decision in mid-April.
In her first speech since joining the central bank’s governing council last summer, Ms. Kozicki said that the central bank was “prepared to act forcefully” to bring high inflation under control. She also argued that Canadian households are better prepared to manage rising interest rates than they were during the last rate hike cycle in 2017 and 2018.
“I expect the pace and magnitude of interest rate increases and the start of [quantitative tightening] to be active parts of our deliberations at our next decision in April,” she said in a keynote speech delivered to the Federal Reserve Bank of San Francisco’s monetary policy conference. Quantitative tightening refers to the central bank shrinking its holdings of government bonds.
“The reasons are straightforward: inflation in Canada is too high, labour markets are tight and there is considerable momentum in demand,” she said.
This adds to the hawkish talk that started the week.
And so bad things happened for bonds today:
Canadian and U.S. government bond yields jumped on Friday, with the benchmark U.S. 10-year note surging to nearly three-year highs, as the market grappled with high inflation and increasingly hawkish central bank commentary. The TSX and S&P 500 closed higher, but the Nasdaq – which is particularly sensitive to rising bond yields – closed lower.
The Canadian dollar saw its ninth consecutive day of gains, its longest winning streak since August 2016, ending the week above 80 cents US.
Closely followed five-year bond yields in Canada – influential in the setting of fixed mortgage rates – took out their 2018 peaks and hit their highest levels since 2011. The five-year was fetching 2.503% by late afternoon, up 21 basis points for the day.
Canada’s 2-year yield soared 19.5 basis points to 2.337%, its highest level since November 2018.
21bp on the five-year! That’s unfathomable! That’s getting pretty close to a $1 price move (on $100 par value) and in my days as a bond-guy, I got pretty interested when the five-year moved $0.25!
So here’s a little graph of the changes in GOC-5 yield over 21 weeks, taken from just before the millennium:
Click for Big
The data for that graph are taken from the Bank of Canada lookup page, for weekly (Wednesday) measurements. The change measured for March 23, 2022 (which is the change from October 27, 2021) is 0.78; so that’s already near the extreme right-end of the histogram in the +0.75% to +1.00% bin; there’s only 31 observations in that one.
But last Wednesday’s measure was a mere 2.20%. If we substitute today’s close of 2.51%, the change would be 1.09%, moving the data point into the +1.00% to +1.25% bin; there’s only two, count ’em, two observations of that much of 21-week gain over the nearly 23 year period (which, admittedly, has seen a significant overall decline through the period; the two periods of note were the ones ending 2002-3-27 and 2002-4-3; the single observation with a change of greater than 125% was the period ended 2009-6-10). This is wild.
Assiduous Reader Frank asked today:
5y GOC rate are climbing but rate reset are plunging. I don’t understand why. Could it be they move too high too fast and are now returning to equilibirum ?
To which I shake my head and tell you that I don’t know and I don’t think anyone else really knows either, although there will be some (like the institutional traders at the big brokerages) with more insight than most because they’re talking to the players all day.
One thing worth mentioning is that market prices are set by the marginal buyers and sellers and in the Canadian preferred share market, these guys are more marginal than usual because there is very little institutional presence in our tiny little retail market; even in our market, volumes have been anemic for over six months, never having recovered from the summer lull, let alone the traditional August deadness.
It could be just a few brokers deciding that Yields Up = Fixed Income Bad and since Preferred Shares = Fixed Income then Preferred Shares = Bad; this is considered to be mind-boggling quantitative investment analysis on the Street. It could be a reprise of those bleak days of spring, 1994: when the morning’s news was bad, the market went down because, of course, bad news means you should sell; when the morning’s news was good, the market went down because the good news meant that the market was stronger than it would be in the future, so you should sell now and beat the rush.
Me, I’m just enjoying the fact that the volatility will keep investors away from the market, increasing the juicy liquidity premium I enjoy for putting up with the volatility.
| 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 | 3.19 % | 3.70 % | 28,051 | 19.69 | 1 | 0.1013 % | 2,814.9 |
| FixedFloater | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.1662 % | 5,208.9 |
| Floater | 3.37 % | 3.37 % | 63,965 | 18.82 | 3 | -0.1662 % | 3,001.9 |
| OpRet | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.0703 % | 3,632.6 |
| SplitShare | 4.72 % | 4.46 % | 30,414 | 3.38 | 7 | 0.0703 % | 4,338.1 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.0703 % | 3,384.7 |
| Perpetual-Premium | 5.34 % | -1.44 % | 58,617 | 0.08 | 17 | -0.0837 % | 3,190.6 |
| Perpetual-Discount | 5.10 % | 5.13 % | 69,102 | 15.19 | 16 | -0.2635 % | 3,621.6 |
| FixedReset Disc | 4.21 % | 5.18 % | 117,028 | 15.10 | 46 | -0.8278 % | 2,695.2 |
| Insurance Straight | 5.14 % | 5.06 % | 91,258 | 15.20 | 18 | -0.6802 % | 3,487.8 |
| FloatingReset | 3.10 % | 3.44 % | 42,817 | 18.67 | 2 | 0.1131 % | 2,874.9 |
| FixedReset Prem | 4.78 % | 3.82 % | 147,556 | 2.00 | 23 | -0.5060 % | 2,687.4 |
| FixedReset Bank Non | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.8278 % | 2,755.1 |
| FixedReset Ins Non | 4.19 % | 5.13 % | 78,462 | 15.43 | 15 | -0.5796 % | 2,863.2 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| PWF.PR.P | FixedReset Disc | -8.00 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-03-25 Maturity Price : 15.75 Evaluated at bid price : 15.75 Bid-YTW : 5.75 % |
| IFC.PR.A | FixedReset Ins Non | -2.99 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-03-25 Maturity Price : 19.50 Evaluated at bid price : 19.50 Bid-YTW : 5.33 % |
| RY.PR.Z | FixedReset Disc | -2.78 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-03-25 Maturity Price : 22.13 Evaluated at bid price : 22.40 Bid-YTW : 5.10 % |
| IAF.PR.B | Insurance Straight | -2.23 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-03-25 Maturity Price : 22.92 Evaluated at bid price : 23.19 Bid-YTW : 4.97 % |
| SLF.PR.D | Insurance Straight | -2.13 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-03-25 Maturity Price : 22.71 Evaluated at bid price : 23.00 Bid-YTW : 4.84 % |
| IFC.PR.C | FixedReset Disc | -1.94 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-03-25 Maturity Price : 22.19 Evaluated at bid price : 22.80 Bid-YTW : 5.13 % |
| TRP.PR.C | FixedReset Disc | -1.93 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-03-25 Maturity Price : 14.71 Evaluated at bid price : 14.71 Bid-YTW : 6.04 % |
| TD.PF.B | FixedReset Disc | -1.74 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-03-25 Maturity Price : 22.23 Evaluated at bid price : 22.57 Bid-YTW : 5.12 % |
| TD.PF.K | FixedReset Disc | -1.70 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-03-25 Maturity Price : 23.99 Evaluated at bid price : 24.34 Bid-YTW : 5.20 % |
| SLF.PR.E | Insurance Straight | -1.61 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-03-25 Maturity Price : 23.00 Evaluated at bid price : 23.27 Bid-YTW : 4.84 % |
| BMO.PR.S | FixedReset Disc | -1.52 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-03-25 Maturity Price : 22.46 Evaluated at bid price : 22.75 Bid-YTW : 5.16 % |
| SLF.PR.C | Insurance Straight | -1.40 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-03-25 Maturity Price : 22.98 Evaluated at bid price : 23.25 Bid-YTW : 4.79 % |
| TRP.PR.A | FixedReset Disc | -1.39 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-03-25 Maturity Price : 17.75 Evaluated at bid price : 17.75 Bid-YTW : 5.97 % |
| BIP.PR.B | FixedReset Prem | -1.37 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2025-12-31 Maturity Price : 25.00 Evaluated at bid price : 26.00 Bid-YTW : 4.34 % |
| BIP.PR.A | FixedReset Disc | -1.35 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-03-25 Maturity Price : 22.65 Evaluated at bid price : 23.43 Bid-YTW : 5.97 % |
| MFC.PR.N | FixedReset Ins Non | -1.33 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-03-25 Maturity Price : 21.97 Evaluated at bid price : 22.30 Bid-YTW : 5.13 % |
| MFC.PR.F | FixedReset Ins Non | -1.32 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-03-25 Maturity Price : 17.17 Evaluated at bid price : 17.17 Bid-YTW : 5.13 % |
| RY.PR.M | FixedReset Disc | -1.31 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-03-25 Maturity Price : 22.12 Evaluated at bid price : 22.60 Bid-YTW : 5.15 % |
| RY.PR.H | FixedReset Disc | -1.31 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-03-25 Maturity Price : 22.25 Evaluated at bid price : 22.60 Bid-YTW : 5.08 % |
| MFC.PR.M | FixedReset Ins Non | -1.30 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-03-25 Maturity Price : 22.28 Evaluated at bid price : 22.70 Bid-YTW : 5.13 % |
| TD.PF.C | FixedReset Disc | -1.27 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-03-25 Maturity Price : 22.20 Evaluated at bid price : 22.61 Bid-YTW : 5.09 % |
| TRP.PR.D | FixedReset Disc | -1.24 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-03-25 Maturity Price : 19.99 Evaluated at bid price : 19.99 Bid-YTW : 5.98 % |
| TD.PF.E | FixedReset Disc | -1.21 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2025-10-31 Maturity Price : 25.00 Evaluated at bid price : 23.74 Bid-YTW : 4.95 % |
| BAM.PF.B | FixedReset Disc | -1.20 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-03-25 Maturity Price : 22.09 Evaluated at bid price : 22.32 Bid-YTW : 5.61 % |
| MFC.PR.B | Insurance Straight | -1.18 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-03-25 Maturity Price : 23.21 Evaluated at bid price : 23.51 Bid-YTW : 4.96 % |
| CM.PR.Y | FixedReset Prem | -1.17 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2024-07-31 Maturity Price : 25.00 Evaluated at bid price : 25.67 Bid-YTW : 3.76 % |
| RY.PR.J | FixedReset Disc | -1.17 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-03-25 Maturity Price : 22.77 Evaluated at bid price : 23.62 Bid-YTW : 5.11 % |
| TD.PF.D | FixedReset Disc | -1.13 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-03-25 Maturity Price : 22.74 Evaluated at bid price : 23.62 Bid-YTW : 5.14 % |
| CU.PR.C | FixedReset Disc | -1.12 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-03-25 Maturity Price : 22.30 Evaluated at bid price : 23.05 Bid-YTW : 5.26 % |
| PWF.PR.K | Perpetual-Discount | -1.11 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-03-25 Maturity Price : 23.71 Evaluated at bid price : 23.98 Bid-YTW : 5.23 % |
| TD.PF.L | FixedReset Prem | -1.11 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2024-04-30 Maturity Price : 25.00 Evaluated at bid price : 25.83 Bid-YTW : 3.94 % |
| NA.PR.S | FixedReset Disc | -1.06 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-03-25 Maturity Price : 22.93 Evaluated at bid price : 23.25 Bid-YTW : 5.14 % |
| TD.PF.A | FixedReset Disc | -1.06 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-03-25 Maturity Price : 22.11 Evaluated at bid price : 22.43 Bid-YTW : 5.10 % |
| TD.PF.J | FixedReset Prem | -1.04 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-03-25 Maturity Price : 24.37 Evaluated at bid price : 24.75 Bid-YTW : 5.22 % |
| CU.PR.E | Perpetual-Discount | 1.04 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-03-25 Maturity Price : 24.00 Evaluated at bid price : 24.25 Bid-YTW : 5.09 % |
| BAM.PR.Z | FixedReset Disc | 1.04 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-03-25 Maturity Price : 23.65 Evaluated at bid price : 24.25 Bid-YTW : 5.54 % |
| CM.PR.Q | FixedReset Disc | 1.48 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2025-07-31 Maturity Price : 25.00 Evaluated at bid price : 23.51 Bid-YTW : 5.02 % |
| CM.PR.O | FixedReset Disc | 1.83 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-03-25 Maturity Price : 21.95 Evaluated at bid price : 22.19 Bid-YTW : 5.18 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| CM.PR.P | FixedReset Disc | 101,185 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-03-25 Maturity Price : 22.15 Evaluated at bid price : 22.53 Bid-YTW : 5.03 % |
| BAM.PR.Z | FixedReset Disc | 85,800 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-03-25 Maturity Price : 23.65 Evaluated at bid price : 24.25 Bid-YTW : 5.54 % |
| TRP.PR.K | FixedReset Prem | 60,300 | YTW SCENARIO Maturity Type : Call Maturity Date : 2022-05-31 Maturity Price : 25.00 Evaluated at bid price : 25.16 Bid-YTW : 3.41 % |
| TD.PF.M | FixedReset Prem | 58,970 | YTW SCENARIO Maturity Type : Call Maturity Date : 2024-07-31 Maturity Price : 25.00 Evaluated at bid price : 26.00 Bid-YTW : 3.67 % |
| FTS.PR.M | FixedReset Disc | 50,400 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-03-25 Maturity Price : 21.94 Evaluated at bid price : 22.21 Bid-YTW : 5.40 % |
| CM.PR.R | FixedReset Prem | 31,603 | YTW SCENARIO Maturity Type : Call Maturity Date : 2022-07-31 Maturity Price : 25.00 Evaluated at bid price : 25.00 Bid-YTW : 3.25 % |
| There were 17 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| BAM.PR.K | Floater | Quote: 14.00 – 15.50 Spot Rate : 1.5000 Average : 0.8673 YTW SCENARIO |
| IFC.PR.A | FixedReset Ins Non | Quote: 19.50 – 21.25 Spot Rate : 1.7500 Average : 1.1451 YTW SCENARIO |
| TRP.PR.G | FixedReset Disc | Quote: 12.29 – 22.62 Spot Rate : 10.3300 Average : 9.7507 YTW SCENARIO |
| PWF.PR.P | FixedReset Disc | Quote: 15.75 – 17.30 Spot Rate : 1.5500 Average : 0.9775 YTW SCENARIO |
| BAM.PR.C | Floater | Quote: 13.99 – 15.00 Spot Rate : 1.0100 Average : 0.6020 YTW SCENARIO |
| BAM.PF.B | FixedReset Disc | Quote: 22.32 – 23.50 Spot Rate : 1.1800 Average : 0.9884 YTW SCENARIO |
[…] shooting up from 1.67% at February month-end to 2.44% at March month-end. I commented on March 25 regarding just how unusual it was to see such a fast […]