June 15, 2010

Continuing trouble in Europe:

Bank bond sales slowed in May to the lowest since Lehman Brothers Holdings Inc.’s failure in 2008 as the extra yield buyers demand to hold the securities over government debt soared to the highest this year. Firms are wary of lending to each other, depositing record funds with the European Central Bank.

The central bank is preventing a crisis by providing banks with unprecedented funding. In substituting long-term money with shorter-maturity ECB cash, policymakers are making it harder to wean banks off life support as well as the short-term financing that regulators blame for the credit crisis.

Risk aversion is helping to spur sales of covered bonds, securities that are guaranteed by the issuer and backed by mortgages and other loans, reducing risk for investors and interest payments for the issuer. Financial firms have sold 11.5 billion euros ($13.9 billion) of the bonds this month, three times the total for May, according to van Steenis. Frankfurt- based Commerzbank raised 1 billion euros in a June 9 offering.

BP is looking greasy:

BP Plc’s credit rating was cut six levels to two above “junk” by Fitch Ratings on concern over the potential cost of cleaning up the Gulf of Mexico oil spill and meeting future liabilities.

BP’s long-term issuer default and senior unsecured ratings were lowered to BBB from AA, Fitch said in a statement today. That follows a reduction from AA+ on June 3.

The yield premium investors demand to hold BP’s 750 million euros of 4.25 percent bonds due next year rather than similar- maturity government debt increased 143 basis points to 505 basis points, according to HSBC Holdings Plc prices on Bloomberg.

BP credit-default swaps surged 39 basis points after today’s ratings downgrade to 476.5, according to CMA DataVision.

Speaking of BP:

Exxon Mobil Corp., ConocoPhillips, Chevron Corp. and Royal Dutch Shell Plc are as ill-prepared as BP Plc to halt and clean up an offshore oil spill because they all use “carbon copy” disaster plans, lawmakers said.

Lawmakers faulted the four executives for disaster-response plans that would halt oil leaks at the sea floor using the same techniques that failed for BP at its Macondo well.

Naturally, anybody who does something different that – for whatever reason – doesn’t work is simultaneously criticized for not using best practices.

It will be a long time before the truth is known, but my instinct is to look first at common or garden complexity. Everything’s complicated nowadays, everything is invented and serviced by small teams of specialists and everybody parrots what they say to the best of their ability. Used to be, it was common for teenagers to buy old cars and fix them up – a virtually impossible task nowadays. How many people in the world can talk about, for instance, Toyota’s fly-by-wire accelleration system and really know what they’re talking about? A dozen?

It’s nice to see that there are still some adults left in the business:

Despite all the bad headlines — the accusations of fraud, the talk of a big settlement, the risk, however remote, of criminal charges — there’s an inconvenient truth that’s been largely ignored: Most of Goldman’s big customers are not bolting.

“We trust them,” Jeffrey R. Immelt, the chief executive of General Electric, told an audience at the 92nd Street Y in New York last month. “People need to tone down the rhetoric around financial services and stop the populism and be adults.”

I’ve done business with Goldman before and I’ll do business with Goldman again. Why? Not because they’re nice people. Not because they’re kind to small furry animals. But because they can source trades. If I go to Goldman and say ‘I want to take such and such a position’, they’ll come back to me with price. You know, just like, say, a broker. Or a used car salesman, for that matter.

The Canadian preferred share market just kept on keeping on today, with PerpetualDiscounts up 24bp and FixedResets gaining 14bp, on moderate volume. Again, there were no losers in the Performance Highlights table … now, if I were a real financial journalist, I’d be able to say something like “This is the first time since august 17 that there have been two successive days of no losers during months without an “R” in them” …. but I ain’t. PerpetualDiscounts dominated the volume tables, another relatively rare occurance.

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 2.70 % 2.76 % 36,876 20.58 1 0.0000 % 2,092.7
FixedFloater 5.18 % 3.30 % 25,389 19.88 1 0.8157 % 3,092.2
Floater 2.41 % 2.78 % 80,471 20.29 3 0.5541 % 2,250.6
OpRet 4.88 % 3.62 % 90,468 0.93 11 0.3262 % 2,327.6
SplitShare 6.29 % 5.12 % 99,402 0.08 2 1.1633 % 2,204.1
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.3262 % 2,128.4
Perpetual-Premium 0.00 % 0.00 % 0 0.00 0 0.2373 % 1,897.5
Perpetual-Discount 5.97 % 6.03 % 205,997 13.84 77 0.2373 % 1,796.1
FixedReset 5.41 % 3.94 % 389,598 3.49 45 0.1414 % 2,186.8
Performance Highlights
Issue Index Change Notes
BAM.PR.J OpRet 1.13 % YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2018-03-30
Maturity Price : 25.00
Evaluated at bid price : 25.90
Bid-YTW : 4.84 %
BAM.PR.K Floater 1.16 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-06-15
Maturity Price : 15.67
Evaluated at bid price : 15.67
Bid-YTW : 2.78 %
MFC.PR.A OpRet 1.19 % YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2015-12-18
Maturity Price : 25.00
Evaluated at bid price : 25.60
Bid-YTW : 3.62 %
IAG.PR.F Perpetual-Discount 1.19 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-06-15
Maturity Price : 23.61
Evaluated at bid price : 23.78
Bid-YTW : 6.22 %
GWO.PR.G Perpetual-Discount 1.45 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-06-15
Maturity Price : 21.65
Evaluated at bid price : 21.65
Bid-YTW : 6.03 %
ELF.PR.F Perpetual-Discount 2.30 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-06-15
Maturity Price : 20.00
Evaluated at bid price : 20.00
Bid-YTW : 6.76 %
BNA.PR.C SplitShare 2.72 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2019-01-10
Maturity Price : 25.00
Evaluated at bid price : 20.01
Bid-YTW : 7.62 %
Volume Highlights
Issue Index Shares
Traded
Notes
ELF.PR.G Perpetual-Discount 77,400 Nesbitt crossed 50,000 at 17.85. Scotia bought 16,400 from anonymous at 16,400.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-06-15
Maturity Price : 17.85
Evaluated at bid price : 17.85
Bid-YTW : 6.79 %
PWF.PR.K Perpetual-Discount 65,950 RBC crossed two blocks of 30,000 each at 20.50.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-06-15
Maturity Price : 20.37
Evaluated at bid price : 20.37
Bid-YTW : 6.18 %
BNS.PR.Y FixedReset 39,346 Nesbitt crossed blocks of 13,100 and 10,000, both at 24.80.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-06-15
Maturity Price : 24.65
Evaluated at bid price : 24.70
Bid-YTW : 3.87 %
TD.PR.O Perpetual-Discount 36,370 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-06-15
Maturity Price : 21.19
Evaluated at bid price : 21.19
Bid-YTW : 5.81 %
CM.PR.I Perpetual-Discount 34,350 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-06-15
Maturity Price : 19.81
Evaluated at bid price : 19.81
Bid-YTW : 6.03 %
BMO.PR.J Perpetual-Discount 23,650 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-06-15
Maturity Price : 19.63
Evaluated at bid price : 19.63
Bid-YTW : 5.79 %
There were 25 other index-included issues trading in excess of 10,000 shares.

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