August 24, 2011

Moody’s downgraded Japan:

Japan’s debt rating was lowered by Moody’s Investors Service, which cited “weak” prospects for economic growth that will make it difficult for the government to rein in the world’s largest public debt burden.

Moody’s cut the grade one step to Aa3, with a stable outlook, it said in a statement today. Rebuilding costs from the March 11 earthquake and tsunami, along with continuing efforts to contain the Fukushima nuclear crisis, may make it hard for officials to meet their borrowing target this year, it said.

More joy from US housing:

Home prices in the U.S. fell 5.9 percent in the second quarter from a year earlier, the biggest decline since 2009, as foreclosures added to the inventory of properties for sale.

Prices dropped 0.6 percent from the prior three months, the Federal Housing Finance Agency said today in a report from Washington. In June, prices retreated 4.3 percent from a year earlier, while increasing 0.9 percent from the previous month.

The U.S. inventory of homes for sale averaged 3.7 million during the second quarter, the highest since the third quarter of 2010, data from the National Association of Realtors show. The mortgages on 6.5 million U.S. homes had late payments or were in foreclosure in June, according to Lender Processing Services Inc. in Jacksonville, Florida.

It’s all the banks fault! Banks are evil! Banks should show forebearance, the way the neighbors would!

Members of the Vintage East Condominium Association in Miami Beach got tired of waiting for JPMorgan Chase & Co. (JPM) to foreclose on unit 9, so they sued the bank in February to take control of the property.

In June, more than four years after the owner stopped making payments, a judge ruled that JPMorgan lost its claim to the $144,000 mortgage. The apartment is now on the market for $87,500, and the association may stave off insolvency with proceeds from the sale and a new owner who pays monthly dues, said Jane Losson, a board member at the complex.

Financially troubled condo associations are taking banks to court as foreclosure delays enable delinquent homeowners to stay in their buildings for years, often without paying dues that keep boards running. The groups start by pressuring lenders to speed up home seizures and take over payment of the monthly fees. In extreme situations, like the Vintage East case, associations may force banks to give up rights to the property.

The bank delays have left homes in the delinquency process longer. U.S. homeowners facing foreclosure averaged 587 days without making a mortgage payment in June, up from 251 days in January 2008, according to Lender Processing Services Inc. (LPS), a real estate information company in Jacksonville, Florida.

In Florida, where 14 percent of homes with a mortgage have a foreclosure notice, the average delinquent borrower hadn’t made a payment for 719 days, or almost two years, LPS data show.

What a surprise! European credit markets are sick:

Investors are demanding a yield of 42 per cent to buy Greek two year notes amid concern that bailouts won’t work.

In the corporate credit markets, huge financial institutions aren’t able to borrow for longer terms such as five years. There’s no credible market for their bonds, strategists say, but even guesses at the prices show interest rates that investors would demand from banks mean there’s no way they would borrow.

This is having a few knock-on effects:

UBS AG (UBSN)’s decision to cut 5 percent of its workforce brings to more than 40,000 the number of jobs cut by European banks in the past month as the region’s worsening sovereign debt crisis crimps trading revenue.

UBS, Switzerland’s biggest bank, said yesterday it will eliminate 3,500 jobs, mainly from its investment bank. It follows HSBC Holdings Plc (HSBA), which announced 30,000 cuts on Aug. 1, Barclays Plc (BARC), which is cutting headcount by 3,000, and Royal Bank of Scotland Group Plc (RBS), which is eliminating 2,000 posts. Credit Suisse Group AG (CSGN) announced 2,000 reductions on July 28.

European banks are slashing jobs this year six times faster than their U.S. peers, according to data compiled by Bloomberg…

I’m not the only one nervous about the ECB buying bad credits:

“In the long term, this can’t be good, and therefore should be tolerated at best for a short period of time,” Mr. Wulff said in the English text of his remarks, which were delivered in German. “The guardians of the currency, too, must quickly find their way back to the agreed principles. I regard the huge buy-up of government bonds of individual states by the European Central Bank as legally questionable.”

Mr. Wulff’s views are reflective more of the mood of the rank-and-file of Germany coalition government than of the government itself. German Chancellor Angel Merkel said in the eastern German city of Mageburg Wednesday that she would vigorously fight the breakup of the currency bloc.

The yield on two-year Greek debt surged to a record Wednesday, as investors demanded interest of more than 44 per cent to buy the security. Faith in the latest European effort to rescue Greece is waning as several of its euro-area partners demand collateral in return for aid payments. Greece earlier sent Finland cash to secure the Nordic country’s contribution to the pan-European bailout plan.

You win some, you lose some:

John Paulson, the billionaire who is betting on an economic recovery by the end of 2012, has lost about 14 percent this month on a merger arbitrage hedge fund, according to an investor.

The Paulson Partners Enhanced fund declined 11 percent this year through Aug. 19, said the investor, who asked not to be named because the information is private. The fund had been up 2.9 percent this year through Aug. 4.

Paulson’s merger-fund losses add to the declines his New York-based firm, Paulson & Co., has suffered on other strategies. His largest hedge fund, Paulson Advantage Plus, dropped 22 percent this month through Aug. 19, bringing its 2011 loss to 39 percent, the investor said.

I wonder how the Disadvantage Minus fund did!

DBRS confirmed AER.PR.A at Pfd-3.

S&P downgraded Sino-Forest yesterday:

  • We believe the delay in the findings of an independent committee’s investigation into fraud allegations is negative for Sino-Forest’s credit profile.
  • In addition, the company’s operating profit declined in the most recently reported financial quarter.
  • We are therefore lowering the corporate credit rating on Sino-Forest and the issue rating on its senior unsecured notes and convertible bonds to ‘B’ from ‘B+’.
  • We have kept all the ratings on CreditWatch with negative implications. We may withdraw or suspend the ratings if we believe information risk is too high, such as the company delays its results announcement for the third quarter of 2011 or the investigation is extended again.

It was a good day for the Canadian preferred share market, with PerpetualDiscounts winning 20bp, FixedResets gaining 12bp and DeemedRetractibles up 17bp. Good volatility, with the Performance Highlights table comprised completely of winners. Volume was average.

PerpetualDiscounts now yield 5.45%, equivalent to about 7.08% interest at the standard equivalency factor of 1.3x. Long Corporates now yield about 4.95%, so the pre-tax interest-equivalent spread is now about 210bp, a tightening from the 225bp reported August 17 as the yields converged slightly.

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 0.0672 % 2,148.3
FixedFloater 0.00 % 0.00 % 0 0.00 0 0.0672 % 3,231.0
Floater 2.82 % 2.54 % 27,906 20.95 4 0.0672 % 2,319.6
OpRet 4.89 % 2.20 % 55,343 0.58 9 0.0561 % 2,441.0
SplitShare 5.36 % 0.95 % 60,860 0.51 4 0.8570 % 2,500.2
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0561 % 2,232.1
Perpetual-Premium 5.67 % 5.01 % 129,402 2.00 14 0.0706 % 2,102.6
Perpetual-Discount 5.34 % 5.45 % 100,127 14.66 16 0.2016 % 2,235.0
FixedReset 5.14 % 3.15 % 207,459 2.69 60 0.1154 % 2,321.9
Deemed-Retractible 5.06 % 4.67 % 265,838 7.95 46 0.1733 % 2,187.9
Performance Highlights
Issue Index Change Notes
PWF.PR.F Perpetual-Discount 1.01 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-08-24
Maturity Price : 24.68
Evaluated at bid price : 25.00
Bid-YTW : 5.29 %
BAM.PR.R FixedReset 1.10 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-08-24
Maturity Price : 23.41
Evaluated at bid price : 25.80
Bid-YTW : 3.93 %
HSB.PR.D Deemed-Retractible 1.63 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.95
Bid-YTW : 5.15 %
BNA.PR.E SplitShare 1.68 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2017-12-10
Maturity Price : 25.00
Evaluated at bid price : 23.00
Bid-YTW : 6.42 %
BNA.PR.C SplitShare 2.04 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2019-01-10
Maturity Price : 25.00
Evaluated at bid price : 22.00
Bid-YTW : 6.42 %
ELF.PR.G Perpetual-Discount 2.17 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-08-24
Maturity Price : 21.18
Evaluated at bid price : 21.18
Bid-YTW : 5.69 %
CIU.PR.C FixedReset 4.12 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-08-24
Maturity Price : 23.18
Evaluated at bid price : 25.00
Bid-YTW : 2.88 %
Volume Highlights
Issue Index Shares
Traded
Notes
FTS.PR.E OpRet 256,350 Nesbitt crossed blocks of 150,000 and 75,000, both at 26.90. Desjardins crossed 25,000 at the same price.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-06-01
Maturity Price : 25.75
Evaluated at bid price : 26.87
Bid-YTW : 2.20 %
SLF.PR.A Deemed-Retractible 171,454 TD crossed blocks of 68,000 and 25,000, both at 23.10. Desjardins crossed 30,000 at the same price. RBC crossed 25,000 and 11,100, both at the same price again.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.06
Bid-YTW : 5.72 %
GWO.PR.I Deemed-Retractible 138,870 Desjardins crossed 105,000 at 22.65; Nesbitt crossed 25,000 at 22.80.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.75
Bid-YTW : 5.78 %
BNS.PR.T FixedReset 76,909 RBC crossed blocks of 23,800 and 48,800, both at 27.25.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-04-25
Maturity Price : 25.00
Evaluated at bid price : 27.06
Bid-YTW : 3.20 %
TD.PR.E FixedReset 74,687 Nesbitt crossed two blocks of 35,000 each, both at 27.29.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-04-30
Maturity Price : 25.00
Evaluated at bid price : 27.20
Bid-YTW : 2.98 %
FTS.PR.H FixedReset 69,975 Scotia crossed blocks of 40,000 and 25,000, both at 25.60.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-08-24
Maturity Price : 23.43
Evaluated at bid price : 25.50
Bid-YTW : 2.91 %
There were 30 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
BAM.PR.X FixedReset Quote: 24.00 – 24.65
Spot Rate : 0.6500
Average : 0.4533

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-08-24
Maturity Price : 22.73
Evaluated at bid price : 24.00
Bid-YTW : 3.75 %

BAM.PR.B Floater Quote: 15.93 – 16.34
Spot Rate : 0.4100
Average : 0.2862

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-08-24
Maturity Price : 15.93
Evaluated at bid price : 15.93
Bid-YTW : 3.33 %

IAG.PR.E Deemed-Retractible Quote: 25.67 – 25.98
Spot Rate : 0.3100
Average : 0.2165

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-12-31
Maturity Price : 25.00
Evaluated at bid price : 25.67
Bid-YTW : 5.49 %

POW.PR.C Perpetual-Premium Quote: 25.12 – 25.43
Spot Rate : 0.3100
Average : 0.2182

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-08-24
Maturity Price : 24.82
Evaluated at bid price : 25.12
Bid-YTW : 5.84 %

CU.PR.A Perpetual-Premium Quote: 25.25 – 25.49
Spot Rate : 0.2400
Average : 0.1529

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2012-03-01
Maturity Price : 25.00
Evaluated at bid price : 25.25
Bid-YTW : 3.63 %

CM.PR.P Deemed-Retractible Quote: 25.53 – 25.78
Spot Rate : 0.2500
Average : 0.1727

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2012-10-29
Maturity Price : 25.00
Evaluated at bid price : 25.53
Bid-YTW : 3.97 %

One Response to “August 24, 2011”

  1. […] spread (also called the seniority spread) is now 201bp, a tightening from the 210bp reported August 24 as yields converged […]

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