November 17, 2010

Econbrowser‘s Menzie Chinn brings to my attention a very nice interactive from the NYT on the US budget deficit.

It looks as if the Europeans are thinking about rejecting bank leverage caps:

Banks in Europe may escape global rules designed to limit their debt, as several countries push the European Union to drop a so-called leverage ratio, two people close to the discussions said.

A majority of nations in the 27-country EU oppose introducing a binding leverage ratio that was adopted last week by the Group of 20 countries, according to the people, who declined to be identified because the discussions are private. The countries, including Sweden and France, say the ratio might encourage banks to pursue risky activities, the people said.

Opponents of a leverage ratio say that by putting a limit on the scale of banks’ activities, institutions may be tempted to maximize returns by curtailing traditional lending in favor of riskier activities.

Almost all EU states have said they oppose implementing legislation that includes a binding leverage ratio, according to the people. The countries are seeking a separate decision on the issue in several years, following further analysis of the financial effect.

“The leverage ratio is unsuitable as a regulatory instrument”, declared Chris De Noose, managing director of the European Savings Banks Group, “due to its lack of sensitivity to the specificities of the business models of the various financial institutions and their riskiness and exposure to market volatility.”

A binding leverage ratio probably leads to banks being given the “wrong incentives,” Lars Hofer, a spokesman for the Association of German Banks, said. Banks could take “higher risks in order to generate higher profits on a given number of risk-weighted assets,” he said.

Well, all I can say is that that doesn’t fit my memories of the Panic of 2007! However, a lack of leverage cap will allow the European banks to load up on nice, save, solid sovereign debt.

Efforts to politicize the Fed continue:

The four top Republicans in Congress wrote to Federal Reserve Chairman Ben S. Bernanke today expressing “deep concerns” over the central bank’s second- round of Treasury bond purchases.

“While intended to improve the short-term growth of the U.S. economy and help maintain a stable price level, such a measure introduces significant uncertainty regarding the future strength of the dollar,” the letter said. The purchases could “result both in hard-to-control, long-term inflation and potentially generate artificial asset bubbles.”

The letter, dated today, was signed by House Republican leader John Boehner of Ohio, House Republican Whip Eric Cantor of Virginia, Senate Republican leader Mitch McConnell of Kentucky, and Senate Republican Whip Jon Kyl of Arizona.

Straight Perpetuals continued to slide today, with PerpetualDiscounts losing 18bp, but FixedReset were able to hold, gaining 1bp. Volume continued to be heavy.

PerpetualDiscounts now yield 5.43%, equivalent to 7.60% interest at the standard equivalency factor of 1.4x. Long Corporates now yield about 5.4%, so the pre-tax interest-equivalent spread (also called the Seniority Spread) is now 220bp, an increase from the 210bp reported on November 10.

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 -0.1140 % 2,235.7
FixedFloater 4.88 % 3.50 % 27,177 19.14 1 0.2247 % 3,449.2
Floater 2.66 % 2.34 % 63,062 21.39 4 -0.1140 % 2,414.0
OpRet 4.75 % 2.83 % 61,560 2.44 8 -0.1282 % 2,396.0
SplitShare 5.34 % -1.12 % 122,645 1.06 3 0.3608 % 2,495.3
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.1282 % 2,190.9
Perpetual-Premium 5.66 % 5.30 % 161,043 4.75 24 -0.2917 % 2,014.4
Perpetual-Discount 5.36 % 5.43 % 258,566 14.74 53 -0.1766 % 2,035.9
FixedReset 5.22 % 3.00 % 335,983 3.19 50 0.0140 % 2,282.8
Performance Highlights
Issue Index Change Notes
FTS.PR.F Perpetual-Discount -2.04 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-11-17
Maturity Price : 22.91
Evaluated at bid price : 23.10
Bid-YTW : 5.31 %
SLF.PR.A Perpetual-Discount -1.31 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-11-17
Maturity Price : 21.66
Evaluated at bid price : 21.92
Bid-YTW : 5.49 %
BAM.PR.O OpRet -1.13 % YTW SCENARIO
Maturity Type : Option Certainty
Maturity Date : 2013-06-30
Maturity Price : 25.00
Evaluated at bid price : 26.20
Bid-YTW : 3.36 %
BMO.PR.L Perpetual-Premium -1.11 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-06-24
Maturity Price : 25.00
Evaluated at bid price : 25.86
Bid-YTW : 5.19 %
BAM.PR.M Perpetual-Discount -1.07 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-11-17
Maturity Price : 21.22
Evaluated at bid price : 21.22
Bid-YTW : 5.69 %
SLF.PR.C Perpetual-Discount -1.05 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-11-17
Maturity Price : 20.80
Evaluated at bid price : 20.80
Bid-YTW : 5.43 %
MFC.PR.E FixedReset 1.13 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-10-19
Maturity Price : 25.00
Evaluated at bid price : 26.77
Bid-YTW : 3.52 %
POW.PR.B Perpetual-Discount 1.22 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-11-17
Maturity Price : 23.88
Evaluated at bid price : 24.15
Bid-YTW : 5.60 %
Volume Highlights
Issue Index Shares
Traded
Notes
SLF.PR.F FixedReset 102,775 TD crossed 73,400 at 27.70; National crossed 17,000 at 27.79.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-07-30
Maturity Price : 25.00
Evaluated at bid price : 27.70
Bid-YTW : 3.13 %
GWO.PR.F Perpetual-Premium 89,910 RBC crossed 88,900 at 25.45.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2012-10-30
Maturity Price : 25.00
Evaluated at bid price : 25.44
Bid-YTW : 5.40 %
TD.PR.M OpRet 83,640 RBC crossed 80,000 at 25.86.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2010-12-17
Maturity Price : 25.75
Evaluated at bid price : 25.85
Bid-YTW : 2.42 %
TDS.PR.C SplitShare 76,467 Recent new issue.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2011-12-15
Maturity Price : 10.00
Evaluated at bid price : 10.60
Bid-YTW : -1.12 %
TD.PR.S FixedReset 75,765 National crossed two blocks of 25,000 each and one of 10,000, all at 26.65.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-08-30
Maturity Price : 25.00
Evaluated at bid price : 26.51
Bid-YTW : 2.72 %
TD.PR.Y FixedReset 73,620 Nesbitt crossed 60,000 at 26.51.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-11-30
Maturity Price : 25.00
Evaluated at bid price : 26.52
Bid-YTW : 2.98 %
There were 59 other index-included issues trading in excess of 10,000 shares.

One Response to “November 17, 2010”

  1. [...] called the Seniority Spread) is now 210bp, a significant tightening from the 220bp reported on November 17 … although mind you, it was also 210bp [...]

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