PrefBlog

The Competition Bureau is leaning against TMX / Maple:

Dealing a major blow to the proposed acquisition of TMX Group, Canada’s Competition Bureau has informed the 13 financial institutions behind the takeover that it has “serious concerns” with their plan.

On Tuesday competition commissioner Melanie Aitken privately informed the consortium, named Maple Group Acquisition Corp., that she has concerns “about the likely competitive effects of the proposed transactions in the current environment, primarily in connection with equities trading and clearing and settlement services in Canada,” according to a statement from Maple Group.

The central banks are mitigating market discipline:

Six central banks led by the Federal Reserve made it cheaper for banks to borrow dollars in emergencies in a global effort to ease Europe’s sovereign-debt crisis.

Stocks rallied worldwide, commodities surged and yields on most European debt fell on the show of force from central banks aimed at easing strains in financial markets. The cost for European banks to borrow dollars dropped from the highest in three years, tempering concerns about the euro’s worsening crisis after leaders said they’d failed to boost the region’s bailout fund as much as planned.
…
The premium banks pay to borrow dollars overnight from central banks will fall by half a percentage point to 50 basis points, the Fed said today in a statement in Washington. The so- called dollar swap lines will be extended by six months to Feb. 1, 2013. The Fed coordinated the move with the European Central Bank and the central banks of Canada, Switzerland, Japan and the U.K.

The six central banks also agreed to create temporary bilateral swap programs so funding can be provided in any of the currencies “should market conditions so warrant.” Those swap lines were also authorized through Feb. 1, 2013.

I won’t go so far as to say I don’t like it, but I will say that I’m deeply suspicious. Central Bank financing should be available, certainly, for solvent but illiquid banks, but these loans should be at punitive, not concessionary rates.

With overnight money so cheap, the cost of failing a trade is derisory, so the Fed’s Treasury Market Practice Group has suggested a surcharge that effectively puts a floor of 3% on fail money. It is strictly voluntary, of course, BUT THE FED WOULD REALLY, REALLY LIKE YOU TO DO THIS!

It was a modestly down day for the Canadian preferred share market, with PerpetualDiscounts losing 12bp, FixedResets off 3bp and DeemedRetractibles down 8bp. Volatility was good. Volume was above average.

PerpetualDiscounts now yield 5.32%, equivalent to 6.92% interest at the standard equivalency factor of 1.3x. Long Corporates now yield about 4.8% so the pre-tax interest-equivalent spread (also called the Seniority Spread) is now about 210bp, a significant widening from the 195bp reported November 23 as PerpetualDiscounts got smacked for 17bp dividend yield on the week, while long corporates edged up only 5bp.

This entry was posted on Thursday, December 1st, 2011 at 12:56 am and is filed under Market Action. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.