Today was Equity Through Education Day, a day on which institutional investors are encouraged to trade through BMO Capital Markets with commissions donated to charity. So far CAD 6.6-million in commissions has been skimmed off the hapless beneficiaries of participating institutional accounts, enabling institutional PMs to feel good about themselves.
Sadly, the website – again! – does not explain how discretionary participation (the kind they are attempting to encourage with their ads) can be squared with a PM’s duty to his client, or regulatory requirement to seek best execution. I’ve never understood that.
Realpoint, a CMBS credit rating agency last discussed on September 9, has been approved by NAIC:
The ruling by the National Association of Insurance Commissioners means state regulators can rely on Realpoint in determining how much capital must be held by insurers, Scott Holeman, spokesman for the group, said today. Realpoint provides analysis to bond buyers through subscription, while S&P and Moody’s are paid by companies that issue securities.
Realpoint started the process as reported June 15, when fears of a mass downgrade of CMBS by S&P led insurance companies to seek their ‘license to invest’ from more optomistic firms.
And there’s even more news on the credit rating front! First, William Galvin, Secretary of the Commonwealth of Massachussets is checking the quality of some ratings:
Massachusetts is reviewing DBRS Ltd.’s grades on investments tied to life insurance policies because they might be inflated like the discredited mortgage bonds at the center of the recession.
…
“Bundling the policies to create another investment opportunity closely parallels the subprime mortgage market and subsequent meltdown, whose effects investors are still reeling from,” said Galvin, the state’s chief financial regulator, in the statement.Regulators have said ratings companies were too generous in assigning top credit grades to securities comprised of bundled subprime mortgages before the financial crisis showed many of them were more prone to default than the ratings suggested.
Well, with respect to the last paragraph, hold on a minute! That’s certainly been implied, but I’m not sure whether the regulators have actually gone so far as to state definitely that the ratings were too high. Galvin’s quote, besides conflating two unrelated securities, is also ungrammatical. Was he drunk?
However, help is at hand: Government-Developed Credit Ratings:
“We at the National Association of Insurance Commissioners are studying the viability of creating our own rating agency, a not-for-profit one,” Connecticut Insurance Commissioner Thomas Sullivan said in a telephone interview today.
…
“The fundamental issue is if the bar is always moving, that makes it very difficult,” Sullivan said. “Magically overnight, what we thought was AAA is no longer AAA. That’s a big problem.”
…
Insurers, which are suffering from downgrades of their holdings, have urged regulators to seek alternatives. Rating cuts to structured securities in insurance portfolios have triggered increased capital requirements.The American Council of Life Insurers has asked the NAIC to ease its standards after RMBS rating cuts pushed up carriers’ capital needs fivefold to $11 billion in the six months ended June 30. The ACLI is proposing regulators use “third party” predictions of credit losses on RMBS in place of their reliance on ratings firms.
The NAIC currently conducts some credit analysis on insurers’ investments through the group’s Securities Valuation Office in New York. The deliberations for a new ratings business at the NAIC are still preliminary.
“We’re in the formative stages,” Sullivan said. “Anything’s possible. Financing, legal hurdles, structure; all those things need to be dealt with and we’re examining all of them.”
I can’t wait.
Volume was very good today (possibly quarter end window-dressing / rebalancing, possibly triggered by the YPG.PR.C closing, maybe even clearing the decks for the massive forthcoming TRP settlement), with FixedResets seeing a good spike in volume with lots of blocks. That didn’t do prices much good, though, with PerpetualDiscounts down 11bp on the day and FixedResets losing 2bp.
PerpetualDiscounts closed with a weighted mean average YTW of 5.77%, equivalent to 8.08% at the standard equivalency factor of 1.4x. Long Corporates have backed up to just over 6.0%, so the pre-tax interest-equivalent spread is now about 205bp, a very slight – and possibly completely technical – tightening from the September 16 value and well within its September and Credit Crunch range.
| 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 | 0.2777 % | 1,512.9 |
| FixedFloater | 5.74 % | 3.99 % | 53,875 | 18.61 | 1 | 0.5302 % | 2,677.5 |
| Floater | 2.42 % | 2.08 % | 31,909 | 22.24 | 4 | 0.2777 % | 1,890.1 |
| OpRet | 4.84 % | -11.32 % | 132,485 | 0.09 | 15 | 0.1654 % | 2,298.5 |
| SplitShare | 6.42 % | 6.80 % | 888,843 | 4.02 | 2 | -0.5501 % | 2,061.2 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.1654 % | 2,101.7 |
| Perpetual-Premium | 5.77 % | 5.68 % | 152,336 | 2.82 | 12 | -0.2666 % | 1,877.3 |
| Perpetual-Discount | 5.72 % | 5.77 % | 204,167 | 14.18 | 59 | -0.1065 % | 1,800.9 |
| FixedReset | 5.49 % | 4.03 % | 464,162 | 4.06 | 40 | -0.0203 % | 2,111.0 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| HSB.PR.D | Perpetual-Discount | -2.45 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-09-23 Maturity Price : 21.52 Evaluated at bid price : 21.52 Bid-YTW : 5.84 % |
| RY.PR.G | Perpetual-Discount | -1.21 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-09-23 Maturity Price : 20.42 Evaluated at bid price : 20.42 Bid-YTW : 5.58 % |
| CL.PR.B | Perpetual-Premium | -1.09 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2010-01-30 Maturity Price : 25.25 Evaluated at bid price : 25.51 Bid-YTW : 2.94 % |
| TRI.PR.B | Floater | 1.26 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-09-23 Maturity Price : 19.25 Evaluated at bid price : 19.25 Bid-YTW : 2.04 % |
| BAM.PR.O | OpRet | 1.94 % | YTW SCENARIO Maturity Type : Option Certainty Maturity Date : 2013-06-30 Maturity Price : 25.00 Evaluated at bid price : 26.25 Bid-YTW : 3.57 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| BMO.PR.O | FixedReset | 616,380 | Nesbitt crossed 400,000 at 28.00; RBC crossed 20,000 at the same price; then Nesbitt bought 100,000 from anonymous at 28.01. Finally, RBC crossed blocks of 40,000 and 30,000 shares, both at 28.01. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-06-24 Maturity Price : 25.00 Evaluated at bid price : 28.01 Bid-YTW : 3.88 % |
| CIU.PR.B | FixedReset | 211,750 | RBC crossed 20,000 at 28.10; Nesbitt crossed blocks of 40,000 and 60,000 at the same price; and RBC then crossed another 85,000 at 28.10. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-07-01 Maturity Price : 25.00 Evaluated at bid price : 28.05 Bid-YTW : 4.02 % |
| RY.PR.T | FixedReset | 152,033 | RBC crossed blocks of 100,000 and 45,400 at 27.65. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-09-23 Maturity Price : 25.00 Evaluated at bid price : 27.60 Bid-YTW : 4.09 % |
| RY.PR.Y | FixedReset | 150,342 | RBC crossed 20,000 at 27.65, then Nesbitt crossed blocks of 102,100 and 17,400 at 27.60. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-12-24 Maturity Price : 25.00 Evaluated at bid price : 27.60 Bid-YTW : 4.04 % |
| RY.PR.I | FixedReset | 149,148 | Nesbitt crossed two blocks of 50,000 and one of 38,500 at 26.10, YTW SCENARIO Maturity Type : Call Maturity Date : 2014-03-26 Maturity Price : 25.00 Evaluated at bid price : 26.01 Bid-YTW : 4.13 % |
| MFC.PR.D | FixedReset | 131,340 | Nesbitt crossed 100,000 at 28.00. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-07-19 Maturity Price : 25.00 Evaluated at bid price : 27.95 Bid-YTW : 3.96 % |
| There were 50 other index-included issues trading in excess of 10,000 shares. | |||