May 26, 2009

Bloomberg reports that low reported LIBOR rates are masking a high level of credit stratification.

It appears that – to nobody’s surprise – dubious loans were marked down too low during the crisis and buyers of these loans will make a killing as the cash trickles in:

When JPMorgan bought WaMu out of receivership last September for $1.9 billion, the New York-based bank used purchase accounting, which allows it to record impaired loans at fair value, marking down $118.2 billion of assets by 25 percent. Now, as borrowers pay their debts, the bank says it may gain $29.1 billion over the life of the loans in pretax income before taxes and expenses.

Spend-every-penny has stated the federal deficit will be $50-billion this year. Interest – just the interest – on this amount alone – never mind next year’s deficit, or the accumulated national debt, or any other trivialities – will soak up the $2-billion annually he neglected to spend during the boom. So much for the party of fiscal probity. Throw the rascals out!

Holy smokes, look at them Floaters go! Now up 31% ON THE MONTH … looks like a few speculators are betting on increased prime AND decreased yields AND a lower than 100% bankruptcy rate …

Volume was quite heavy again today, PerpetualDiscounts continued their ascent and FixedResets continued their pause.


Click for big
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 3.3540 % 1,275.6
FixedFloater 0.00 % 0.00 % 0 0.00 0 3.3540 % 2,062.9
Floater 2.95 % 3.44 % 83,970 18.60 3 3.3540 % 1,593.6
OpRet 5.03 % 3.65 % 129,160 0.98 15 0.0502 % 2,161.4
SplitShare 5.89 % 5.79 % 54,002 4.24 3 0.7788 % 1,838.5
Interest-Bearing 6.00 % 7.21 % 27,352 0.58 1 0.0000 % 1,987.2
Perpetual-Premium 0.00 % 0.00 % 0 0.00 0 0.2120 % 1,719.5
Perpetual-Discount 6.36 % 6.44 % 157,064 13.25 71 0.2120 % 1,583.6
FixedReset 5.74 % 4.98 % 488,157 4.47 37 -0.0854 % 1,977.6
Performance Highlights
Issue Index Change Notes
TRI.PR.B Floater -2.86 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-05-26
Maturity Price : 17.00
Evaluated at bid price : 17.00
Bid-YTW : 2.33 %
PWF.PR.M FixedReset -1.90 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-05-26
Maturity Price : 23.42
Evaluated at bid price : 25.80
Bid-YTW : 5.19 %
POW.PR.C Perpetual-Discount -1.63 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-05-26
Maturity Price : 21.77
Evaluated at bid price : 21.77
Bid-YTW : 6.78 %
BMO.PR.K Perpetual-Discount -1.40 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-05-26
Maturity Price : 21.07
Evaluated at bid price : 21.07
Bid-YTW : 6.28 %
IAG.PR.A Perpetual-Discount -1.30 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-05-26
Maturity Price : 16.75
Evaluated at bid price : 16.75
Bid-YTW : 7.01 %
CM.PR.A OpRet -1.26 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2009-06-25
Maturity Price : 25.50
Evaluated at bid price : 25.94
Bid-YTW : -10.86 %
BNS.PR.R FixedReset -1.10 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-05-26
Maturity Price : 24.25
Evaluated at bid price : 24.30
Bid-YTW : 4.33 %
TD.PR.S FixedReset 1.03 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-05-26
Maturity Price : 24.43
Evaluated at bid price : 24.50
Bid-YTW : 4.04 %
BNA.PR.C SplitShare 1.04 % Asset coverage of 1.8-:1 as of April 30, according to the company.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2019-01-10
Maturity Price : 25.00
Evaluated at bid price : 14.60
Bid-YTW : 11.70 %
BMO.PR.J Perpetual-Discount 1.04 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-05-26
Maturity Price : 18.41
Evaluated at bid price : 18.41
Bid-YTW : 6.16 %
CM.PR.I Perpetual-Discount 1.06 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-05-26
Maturity Price : 18.18
Evaluated at bid price : 18.18
Bid-YTW : 6.55 %
SLF.PR.E Perpetual-Discount 1.06 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-05-26
Maturity Price : 17.18
Evaluated at bid price : 17.18
Bid-YTW : 6.55 %
CIU.PR.A Perpetual-Discount 1.10 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-05-26
Maturity Price : 19.26
Evaluated at bid price : 19.26
Bid-YTW : 6.01 %
NA.PR.O FixedReset 1.18 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-03-17
Maturity Price : 25.00
Evaluated at bid price : 26.66
Bid-YTW : 5.11 %
BAM.PR.M Perpetual-Discount 1.32 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-05-26
Maturity Price : 15.40
Evaluated at bid price : 15.40
Bid-YTW : 7.89 %
GWO.PR.I Perpetual-Discount 1.37 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-05-26
Maturity Price : 17.80
Evaluated at bid price : 17.80
Bid-YTW : 6.44 %
BNS.PR.M Perpetual-Discount 1.41 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-05-26
Maturity Price : 18.66
Evaluated at bid price : 18.66
Bid-YTW : 6.11 %
CGI.PR.B SplitShare 1.41 % YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2014-03-14
Maturity Price : 25.00
Evaluated at bid price : 25.10
Bid-YTW : 4.80 %
CM.PR.E Perpetual-Discount 1.42 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-05-26
Maturity Price : 21.37
Evaluated at bid price : 21.37
Bid-YTW : 6.64 %
NA.PR.M Perpetual-Discount 1.69 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-05-26
Maturity Price : 23.82
Evaluated at bid price : 24.01
Bid-YTW : 6.30 %
HSB.PR.C Perpetual-Discount 2.00 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-05-26
Maturity Price : 19.90
Evaluated at bid price : 19.90
Bid-YTW : 6.53 %
NA.PR.L Perpetual-Discount 2.06 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-05-26
Maturity Price : 19.79
Evaluated at bid price : 19.79
Bid-YTW : 6.19 %
BAM.PR.B Floater 7.07 % Trade 11,475 shares in a range of 10.94-68 before closing at 11.51-65, 6×5.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-05-26
Maturity Price : 11.51
Evaluated at bid price : 11.51
Bid-YTW : 3.45 %
BAM.PR.K Floater 9.90 % Traded 11,910 shares in a range of 11.05-60 before closing at 11.55-60, 30×9.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-05-26
Maturity Price : 11.55
Evaluated at bid price : 11.55
Bid-YTW : 3.44 %
Volume Highlights
Issue Index Shares
Traded
Notes
RY.PR.I FixedReset 114,758 Nesbitt crossed 14,800 at 24.40, bought 11,000 from CIBC at the same price and sold 44,600 to Commission Direct (who?) at 24.50.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-05-26
Maturity Price : 24.38
Evaluated at bid price : 24.43
Bid-YTW : 4.34 %
MFC.PR.D FixedReset 102,277 RBC crossed 48,600 at 26.60.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-07-19
Maturity Price : 25.00
Evaluated at bid price : 26.56
Bid-YTW : 5.15 %
RY.PR.Y FixedReset 98,905 TD crossed 60,000 at 26.20.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-12-24
Maturity Price : 25.00
Evaluated at bid price : 26.25
Bid-YTW : 5.19 %
W.PR.H Perpetual-Discount 81,260 RBC bought three blocks from Nesbitt, 20,000 shares, 30,000 shares and 28,900 shares, all at 20.95.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-05-26
Maturity Price : 20.95
Evaluated at bid price : 20.95
Bid-YTW : 6.67 %
BMO.PR.O FixedReset 80,365 Scotia bought 25,000 from Nesbitt at 26.85; RBC crossed 15,000 at 26.88.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-06-24
Maturity Price : 25.00
Evaluated at bid price : 26.80
Bid-YTW : 5.19 %
SLF.PR.D Perpetual-Discount 66,874 CIBC crossed 50,000 at 16.98.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-05-26
Maturity Price : 16.91
Evaluated at bid price : 16.91
Bid-YTW : 6.58 %
There were 56 other index-included issues trading in excess of 10,000 shares.

3 Responses to “May 26, 2009”

  1. beluga says:

    I have to break my perfect attendance record this Thursday and miss the seminar. Work calls. But I’m keeping an eye out to see if I can pick up some resets before your seminar makes them go on a run.

  2. prefhound says:

    Interestingly, one floater that has not participated much in the floater renaissance is BBD.PR.B. I reckon that at a bid of $10.26, it is nearly 40% or $5.54 cheaper than BBD.PR.D (bid $15.80), into which it can be converted in three years.

    Based on the current floating dividend remaining constant for those three years, a fair value for the PR.B is $13.66. If the floating dividend could actually rise, this would be higher still (and somewhat lower if prime could fall below the current level).

    If fixed dividend BBD.PR.D remains at $15.80 in three years, its yield will have been 8.4%. However, BBD.PR.B only has to maintain its current floating dividend, and it should rise to the same $15.80, providing an IRR to interconversion of 19.6%.

    For those who dislike the sub-investment grade rating of Bombardier, an arbitrage trade long in B and short in D in equal dollar amounts eliminates the credit risk and provides a pre-tax IRR of 11.5% if BBD.PR.D stays at $15.80(7.1% after tax EVEN IF there were no tax writeoff for dividends paid on the short). AND this assumes the market takes the full 3.2 years to wake up to interconversion.

    Other floaters seem to recognize that prime could stop going down, and may start rising again, but not BBD.PR.B. If we can get this issue to wake up and smell the same coffee, there could be a $3 or 30% gain without having to wait three years.

    The great thing about James’ indices is that we can tell what different pref segments are doing and don’t have to rely on overall market indices (e.g. TXPR) which are compositionally distorted by so many new fixed-reset issues while the once-dominant perpetuals were down (reweighting the index so it can’t possibly go up as much as it went down — but I digress….)

    Keep up the fine work James!

  3. jiHymas says:

    I have to break my perfect attendance record this Thursday and miss the seminar.

    Too bad – but maybe you’ll have some ideas for me regarding a potential fall series!

    one floater that has not participated much in the floater renaissance is BBD.PR.B.

    To be pedantic, I consider that one to be a Ratchet rather than a Floater, since the percentage of prime paid can vary … but at 40% of par, that’s an even more trivial distinction than usual. I just wish there were some ratchets eligible for the HIMIPref™ Indices; (when no issues are avaiable, the index value is updated using the closest approximation, in this case Floaters); but then, I wish for a lot of things.
    I reckon that at a bid of $10.26, it is nearly 40% or $5.54 cheaper than BBD.PR.D (bid $15.80), into which it can be converted in three years.

    Based on the current floating dividend remaining constant for those three years, a fair value for the PR.B is $13.66.

    Wild. I LOVE THIS MARKET!!!

    overall market indices (e.g. TXPR) which are compositionally distorted by so many new fixed-reset issues while the once-dominant perpetuals were down (reweighting the index so it can’t possibly go up as much as it went down

    Indices that are easy to beat (over the long term, anyway) are just another reason to love this market!

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