May 9, 2012

European politicians are talking about a Greek exit:

From the monetary fortress of the European Central Bank to the pro-European duchy of Luxembourg, policy makers are beginning to air their doubts that Greece can stay in the euro.

Post-election tumult in Athens has put the once-taboo subject of an exit from the 17-country currency union on the agenda, lifting the veil on possible scenario planning afoot behind the scenes.

“If Greece decides not to stay in the euro zone, we cannot force Greece,” German Finance Minister Wolfgang Schaeuble said at a conference sponsored by German broadcaster WDR in Brussels today. “They will decide whether to stay in the euro zone or not.”

But until that happens, they’re happy to throw good money after bad:

The European Financial Stability Facility’s Board of Directors confirmed the release of 5.2 billion euros ($6.7 billion) from a first installment of 39.4 billion euros by the end of June, the EFSF said in an e-mailed statement today.

An amount of 4.2 billion euros will be disbursed May 10 and the remaining 1 billion euros aren’t needed before June and will be disbursed depending on Greece’s financing needs, according to the statement.

However, this attitude is not shared globally:

China Investment Corp. has stopped buying European government debt because of an economic crisis on the continent, though it continues to look for new investments there, said CIC President Gao Xiqing.

“What is happening in Europe right now is of course of concern,” Gao said yesterday in an interview in Addis Ababa, Ethiopia, during the World Economic Forum on Africa. “We still have our people looking at opportunities in Europe, even though we don’t want to buy any government bonds.”

There has been a victory for shareholder rights:

Telus Corp. … has withdrawn its share-consolidation proposal, conceding its plan faces certain defeat due to the staunch opposition of an activist U.S. hedge fund.

The Vancouver-based telecommunications giant announced that it was nixing its proposal well after midnight (ET) on Wednesday, just hours before it was scheduled to be put to a shareholder vote at the company’s annual general meeting in Edmonton.

This is all the more noteworthy because the Telus proposal was so beloved of the Precious Purveyors of Pusillanimous Punditry.

Julie Dickson, Superintendent of OSFI, gave a speech today titled Being Lulled into a False Sense of Security filled with the usual platitudes. I was, however, interested in the mention of centralized clearing:

Work is underway to achieve centralized derivatives clearing.

Many parties advocate that new measures have fixed the problems that led to the global financial crisis. The false sense of security that such a position signifies does not take into account the new vulnerabilities that are likely to arise as a result of the changes we are making to the system today. We must constantly be on our guard to identify these vulnerabilities. An example: Centralized derivatives clearing, which I referenced at the start of my remarks. This is a critical initiative, but also one that poses risks if central counterparties are not appropriately risk proofed. Thus, risk-proofing will be a focus of efforts on all fronts. Another risk is the shadow banking sector. If our focus is only on banks, if we, as regulators, are smug and believe we have everything covered off, we might overlook risks associated with shadow banking. Thus, the Financial Stability Board is also focusing on this important sector.

Canadian banks have an enviable position. It is important we all continue to work hard to maintain that position, recognize the risks to stability in Canada, avoid complacency and not allow ourselves to be lulled into a false sense of security.

I am very pleased that Canadian regulators have discovered a method whereby risk can be eliminated. Hurrah!

It was a mixed day for the Canadian preferred share market, with PerpetualPremiums gaining 5bp, FixedResets off 3bp and DeemedRetractibles up 1bp. The Performance Highlights table is comprised entirely of Floaters, which got nailed. Volume was well below average.

PerpetualDiscounts now yield 5.04%, equivalent to 6.55% interest at the standard equivalency factor of 1.3x. Long corporates now yield about 4.45%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now 210bp, a slight widening from the 200bp reported April 30.

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 -1.3894 % 2,472.6
FixedFloater 4.45 % 3.81 % 28,084 17.72 1 0.0000 % 3,544.6
Floater 2.92 % 2.93 % 56,227 19.87 3 -1.3894 % 2,669.8
OpRet 4.76 % 2.76 % 50,667 1.10 5 -0.2674 % 2,505.4
SplitShare 5.24 % 2.70 % 60,731 0.60 4 0.1039 % 2,698.0
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.2674 % 2,290.9
Perpetual-Premium 5.44 % 2.03 % 74,213 0.09 25 0.0477 % 2,230.7
Perpetual-Discount 5.07 % 5.04 % 160,118 15.33 8 0.0875 % 2,444.4
FixedReset 5.04 % 2.95 % 183,225 2.15 68 -0.0282 % 2,401.6
Deemed-Retractible 4.94 % 3.57 % 178,208 1.57 45 0.0122 % 2,330.7
Performance Highlights
Issue Index Change Notes
BAM.PR.B Floater -1.81 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-05-09
Maturity Price : 17.92
Evaluated at bid price : 17.92
Bid-YTW : 2.95 %
BAM.PR.K Floater -1.32 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-05-09
Maturity Price : 18.01
Evaluated at bid price : 18.01
Bid-YTW : 2.93 %
BAM.PR.C Floater -1.04 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-05-09
Maturity Price : 18.01
Evaluated at bid price : 18.01
Bid-YTW : 2.93 %
Volume Highlights
Issue Index Shares
Traded
Notes
CM.PR.L FixedReset 85,652 Desjardins crossed blocks of 19,700 and 20,000, both at 26.86. TD crossed 30,000 at the same price.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-04-30
Maturity Price : 25.00
Evaluated at bid price : 26.82
Bid-YTW : 2.78 %
BNS.PR.Z FixedReset 79,924 RBC crossed blocks of 24,900 and 25,000, both at 25.10.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.08
Bid-YTW : 3.16 %
CM.PR.E Perpetual-Premium 59,850 TD crossed 12,200 at 25.93 and 37,200 at 25.94.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2012-06-08
Maturity Price : 25.25
Evaluated at bid price : 25.85
Bid-YTW : -20.30 %
TD.PR.G FixedReset 56,700 Desjardins crossed 20,000 at 26.77 and 25,000 at 26.76.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-04-30
Maturity Price : 25.00
Evaluated at bid price : 26.70
Bid-YTW : 2.78 %
IAG.PR.C FixedReset 44,093 TD crossed blocks of 19,400 and 20,000, both at 26.15.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-12-31
Maturity Price : 25.00
Evaluated at bid price : 26.15
Bid-YTW : 3.73 %
BNS.PR.X FixedReset 41,263 RBC crossed 35,000 at 26.70.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-04-25
Maturity Price : 25.00
Evaluated at bid price : 26.71
Bid-YTW : 2.76 %
There were 21 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: 18.01 – 18.28
Spot Rate : 0.2700
Average : 0.1739

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-05-09
Maturity Price : 18.01
Evaluated at bid price : 18.01
Bid-YTW : 2.93 %

BAM.PR.B Floater Quote: 17.92 – 18.25
Spot Rate : 0.3300
Average : 0.2398

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-05-09
Maturity Price : 17.92
Evaluated at bid price : 17.92
Bid-YTW : 2.95 %

BAM.PR.O OpRet Quote: 25.76 – 26.00
Spot Rate : 0.2400
Average : 0.1638

YTW SCENARIO
Maturity Type : Option Certainty
Maturity Date : 2013-06-30
Maturity Price : 25.00
Evaluated at bid price : 25.76
Bid-YTW : 2.76 %

CU.PR.C FixedReset Quote: 25.43 – 25.69
Spot Rate : 0.2600
Average : 0.1851

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-06-01
Maturity Price : 25.00
Evaluated at bid price : 25.43
Bid-YTW : 3.59 %

CM.PR.D Perpetual-Premium Quote: 25.93 – 26.18
Spot Rate : 0.2500
Average : 0.1848

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2012-06-08
Maturity Price : 25.00
Evaluated at bid price : 25.93
Bid-YTW : -33.79 %

TRP.PR.A FixedReset Quote: 26.05 – 26.25
Spot Rate : 0.2000
Average : 0.1373

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-12-31
Maturity Price : 25.00
Evaluated at bid price : 26.05
Bid-YTW : 3.14 %

One Response to “May 9, 2012”

  1. [...] Update: Long corporates are at about 4.40% (maybe just a hairsbreadth over), so the pre-tax interest-equivalent spread (in this context, the Seniority Spread) is now about 230bp, a sharp widening from the 210bp reported May 9. [...]

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