June 14, 2013

This housing news is counter-intuitive:

Home repossessions in the U.S. jumped 11 percent in May after declining for the previous five months as rising prices and limited inventory for sale across the country spurred banks to complete foreclosures.

Lenders took back 38,946 homes, up from 34,997 in April, according to Irvine, California-based data firm RealtyTrac, which tracks notices of default, auction and seizures. Thirty-three states had increases in the number of homes repossessed, RealtyTrac said in a report today.

Banks are more willing to move to the final stage of foreclosure because there is sufficient demand and prices are improving, said Eric Workman of Tinley Park, Illinois-based Mack Cos., which aggregates single-family rental homes and resells them to individuals and institutional investors. U.S. home prices advanced almost 11 percent in the year through March, the biggest 12-month gain since April 2006, according to the S&P/Case-Shiller index of values in 20 cities.

Private-equity firms, hedge funds and individuals are all buying foreclosed or distressed homes to turn into rental properties as prices remain 28 percent below their 2006 peak. Companies including Blackstone Group LP (BX), which has invested more than $5 billion to buy almost 30,000 homes, and Colony American Homes Inc., which owns more than 12,000 properties, are helping to increase prices in areas hit hard by the real estate crash by draining the market of inventory as low borrowing costs and improving employment fuel demand from buyers.

Guess who’s the latest big bankruptcy?:

Detroit (9845MF), on the brink of bankruptcy with $17 billion in liabilities, will suspend payments on $2 billion of unsecured debt, beginning with an installment due today, Emergency Manager Kevyn Orr said.

With today’s missed $39.7 million payment on debt issued to fund pensions, Detroit becomes the most populous U.S. city to default since Cleveland in 1978. Unsecured creditors may receive as much as 10 cents on the dollar under a deal Orr offered to more than 100 creditors and union representatives today.

The city would create a regional water agency to take the place of its municipally owned department, and active and retired workers would see their pensions reduced under the plan. Detroit also would spend $1.25 billion over a decade to improve services, eliminate blight and create a more livable community.

If our experience is any indication, a regional water agency is just another tax grab – rates in Toronto have soared, while personnel have unchecked power and huge arrogance.

Meanwhile, in the reaching for yield department:

Junk-rated borrowers from Rite Aid Corp. (RAD) to Atkins Nutritionals Holdings Inc. are raising a riskier type of loan that offers a lesser claim on their assets at a pace last seen before the financial crisis.

Second-lien loan issuance has climbed to $17.1 billion this year, versus $18.6 billion in all of last year and on pace to surpass the record $28.7 billion issued in 2007, according to data compiled by Bloomberg. Rite Aid, the third-largest U.S. drugstore chain, reduced the interest rate on its $500 million loan due to increased investor demand, while dieting company Atkins raised $355 million in loans, including second-lien debt, to fund a dividend.

Investors are turning to the junior-ranking loans that would shield them from an increase in interest rates and offer more protection than bonds, which have been pummeled as speculation increases the Federal Reserve (FDTR) will pare back its unprecedented stimulus. Second-lien loans have fallen just 0.3 percent since Fed Chairman Ben S. Bernanke said the central bank could reduce its asset purchases if the economy shows sustained improvement, while junk bonds have lost 9 times more.

The BoE is losing a good man:

Incoming Bank of England Governor Mark Carney will get an early chance to overhaul management of the U.K. central bank after Paul Tucker said he will step down as deputy governor.

Beaten by the Canadian to the governorship, Tucker said today he will end three decades in policy making later this year and work in U.S academia. Fellow deputy Charlie Bean is also scheduled to leave in the next year and other officials are nearing the ends of their terms. Carney has already left the Bank of Canada and formally starts work in London on July 1.

The UK’s loss is a US win. Tucker, by the way supported high trigger CoCos.

Nothing to do with economics, but this is alleged Medicare fraud too good to ignore:

Based in part on surreptitious tape recordings, an FBI affidavit lays out allegations that a Sacred Heart pulmonologist kept patients too sedated to breathe on their own, then ordered unneeded tracheotomies for them — enabling the for-profit hospital to reap revenue of as much as $160,000 per case.

The affidavit contains an allegation that tracheotomy patients were lucrative for doctors as well as the hospital: The physician could bill $160 each time he visited a tracheotomy patient at the hospital, versus $32 for seeing a ventilator patient in a nursing home.

Today’s puzzle in included in the recent article Four tips for nervous bond investors:

Step 4: Understand the differences between individual bonds, bond funds and guaranteed investment certificates.
Bond fund prices move in the opposite direction of interest rates – they fall when rates are rising and rise when rates decline. With the exception of a fairly obscure category called the target date bond ETF, there is no maturity date where your original investment is handed back to you.

Individual bonds give you that maturity date, although investors may not get back exactly what they paid for their bonds. That’s because many bonds today sell with a price premium over their issue price. When they’re redeemed, it will be at the issue price.

GICs are a big problem-solver for investors worried about holding bonds in a rising rate world. GICs aren’t easily sold before maturity unless you buy a cashable version (which will mean a sacrifice in yield). But they can provide higher yields than government and many high quality corporate bonds, with the additional benefit of deposit insurance from either the federal Canada Deposit Insurance Corp. or credit union plans that vary from province to province. “I like GICs in a rising rate environment,” said [fixed income strategist at TD Wealth] Mr. [Sheldon] Dong. “They preserve your capital.”

Is the assertion that GICs have less interest rate risk than any other bond with the same cash-flows? If so, then I trust all readers will be aware that this is hogwash. You can’t eliminate risk by ignoring it.

It was a day of recovery (or sucker’s rally!) for the Canadian preferred share market today, with PerpetualPremiums (many of which should really be called PendingPerpetualDiscounts, until the month-end rebalancing of the indices!) winning 28bp, FixedResets gaining 18bp and DeemedRetractibles up 22bp. The very lengthy Performance Highlights table is dominated by winning Straight Perpetuals. Volume was above average.

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 0.2312 % 2,567.6
FixedFloater 4.05 % 3.38 % 42,628 18.53 1 -0.8457 % 4,055.6
Floater 2.61 % 2.91 % 81,841 19.96 5 0.2312 % 2,772.3
OpRet 4.85 % 2.46 % 64,220 0.08 5 -0.0390 % 2,615.6
SplitShare 4.65 % 4.35 % 105,354 4.02 6 -0.1624 % 2,977.8
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.0390 % 2,391.7
Perpetual-Premium 5.35 % 4.92 % 89,704 6.28 32 0.2753 % 2,323.6
Perpetual-Discount 5.13 % 5.32 % 415,064 14.97 7 1.2026 % 2,461.0
FixedReset 4.93 % 3.08 % 233,890 3.26 82 0.1832 % 2,496.6
Deemed-Retractible 5.00 % 4.46 % 148,871 4.94 44 0.2206 % 2,408.4
Performance Highlights
Issue Index Change Notes
BNS.PR.Z FixedReset -1.38 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.35
Bid-YTW : 3.57 %
PWF.PR.P FixedReset -1.17 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-06-14
Maturity Price : 23.58
Evaluated at bid price : 25.40
Bid-YTW : 3.13 %
BNA.PR.E SplitShare -1.16 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2017-12-10
Maturity Price : 25.00
Evaluated at bid price : 25.55
Bid-YTW : 4.35 %
IAG.PR.A Deemed-Retractible -1.04 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.87
Bid-YTW : 5.13 %
TRP.PR.C FixedReset 1.04 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-06-14
Maturity Price : 23.55
Evaluated at bid price : 25.30
Bid-YTW : 3.08 %
CU.PR.E Perpetual-Premium 1.06 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-06-14
Maturity Price : 24.37
Evaluated at bid price : 24.77
Bid-YTW : 4.96 %
CU.PR.F Perpetual-Discount 1.11 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-06-14
Maturity Price : 23.45
Evaluated at bid price : 23.76
Bid-YTW : 4.75 %
VNR.PR.A FixedReset 1.13 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-10-15
Maturity Price : 25.00
Evaluated at bid price : 25.91
Bid-YTW : 3.64 %
BAM.PR.T FixedReset 1.19 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-06-14
Maturity Price : 23.44
Evaluated at bid price : 25.52
Bid-YTW : 3.74 %
BAM.PR.M Perpetual-Discount 1.32 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-06-14
Maturity Price : 22.02
Evaluated at bid price : 22.31
Bid-YTW : 5.32 %
BAM.PR.N Perpetual-Discount 1.32 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-06-14
Maturity Price : 21.93
Evaluated at bid price : 22.25
Bid-YTW : 5.34 %
BAM.PF.A FixedReset 1.38 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-09-30
Maturity Price : 25.00
Evaluated at bid price : 25.80
Bid-YTW : 3.81 %
BAM.PF.C Perpetual-Discount 1.40 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-06-14
Maturity Price : 22.06
Evaluated at bid price : 22.38
Bid-YTW : 5.42 %
IAG.PR.G FixedReset 1.43 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-06-30
Maturity Price : 25.00
Evaluated at bid price : 26.23
Bid-YTW : 2.97 %
RY.PR.E Deemed-Retractible 1.52 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-02-24
Maturity Price : 25.25
Evaluated at bid price : 25.39
Bid-YTW : 4.29 %
CU.PR.G Perpetual-Discount 1.83 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-06-14
Maturity Price : 23.58
Evaluated at bid price : 23.90
Bid-YTW : 4.74 %
BAM.PF.D Perpetual-Discount 1.93 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-06-14
Maturity Price : 22.43
Evaluated at bid price : 22.73
Bid-YTW : 5.41 %
Volume Highlights
Issue Index Shares
Traded
Notes
ENB.PR.Y FixedReset 183,505 Recent new issue.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-06-14
Maturity Price : 23.11
Evaluated at bid price : 25.02
Bid-YTW : 3.81 %
CU.PR.G Perpetual-Discount 107,847 Recent new issue.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-06-14
Maturity Price : 23.58
Evaluated at bid price : 23.90
Bid-YTW : 4.74 %
BNS.PR.Z FixedReset 105,820 Jacob (who?) bought two blocks of 10,000 each from Jitney (who?) at 24.30 and 24.35.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.35
Bid-YTW : 3.57 %
RY.PR.T FixedReset 76,797 Nesbitt crossed 75,000 at 26.21.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-08-24
Maturity Price : 25.00
Evaluated at bid price : 26.17
Bid-YTW : 2.57 %
BAM.PF.D Perpetual-Discount 68,150 Recent new issue.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-06-14
Maturity Price : 22.43
Evaluated at bid price : 22.73
Bid-YTW : 5.41 %
SLF.PR.A Deemed-Retractible 59,708 Desjardins crossed 16,000 at 23.65; RBC crossed 24,600 at the same price.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.68
Bid-YTW : 5.37 %
There were 40 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
TRI.PR.B Floater Quote: 23.40 – 24.50
Spot Rate : 1.1000
Average : 0.8913

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-06-14
Maturity Price : 23.14
Evaluated at bid price : 23.40
Bid-YTW : 2.21 %

GWO.PR.P Deemed-Retractible Quote: 25.50 – 25.94
Spot Rate : 0.4400
Average : 0.2715

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2020-03-31
Maturity Price : 25.25
Evaluated at bid price : 25.50
Bid-YTW : 5.17 %

MFC.PR.J FixedReset Quote: 25.50 – 26.00
Spot Rate : 0.5000
Average : 0.3366

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-03-19
Maturity Price : 25.00
Evaluated at bid price : 25.50
Bid-YTW : 3.54 %

ELF.PR.G Perpetual-Discount Quote: 23.40 – 23.95
Spot Rate : 0.5500
Average : 0.3961

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-06-14
Maturity Price : 23.00
Evaluated at bid price : 23.40
Bid-YTW : 5.14 %

TD.PR.R Deemed-Retractible Quote: 26.27 – 26.62
Spot Rate : 0.3500
Average : 0.2365

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-07-14
Maturity Price : 26.00
Evaluated at bid price : 26.27
Bid-YTW : 0.81 %

CIU.PR.A Perpetual-Premium Quote: 24.26 – 24.65
Spot Rate : 0.3900
Average : 0.2796

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-06-14
Maturity Price : 23.82
Evaluated at bid price : 24.26
Bid-YTW : 4.75 %

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