People sometimes pretend that mutual fund MERs are too high. But that’s what people want:
Value of Canadian mutual fund assets: $720-billion
Value of Canadian-listed exchange-traded funds: $36.2-billion
Value of segregated fund assets in Canada: $83.3-billion
Value of hedge fund assets in Canada: $45.7-billion
Value of closed-end funds: $24.1-billion
The Financial Post reports that a real newspaper reports that RBC is too big to fail on a global basis:
Royal Bank of Canada has appeared on a list of banks that have been deemed by global authorities as being too big to fail, according to the Financial Times.
…
The G20 will put off a decision on whether to impose an international capital surcharge for the world’s most vital banks, which would force them to maintain additional capital buffers to help them withstand market shocks, the Financial Times report said.While it may not be explicitly settled at this week’s G20 meeting, it is understood that the banks that are deemed too big to fail will need to raise even more capital than their peers as extra insurance against their sizable reach and influence over the world’s economy.
There are signs the US fiscal deficit is intractable:
The co-chairmen of President Barack Obama’s debt-reduction commission will propose cuts to Social Security and Medicare, as well as reductions in income tax rates in exchange for curbing tax breaks, according to a Republican aide who attended the meeting.
The chairmen’s plan is already causing some Democrats and Republicans on the 18-member commission to balk. The plan will be announced at 1 p.m. Washington time today, said commission spokesman Fred Baldassaro.
Fearless forecast: the problem will remain intractable until the President gets a call from the Treasury saying they’re having big problems selling a bond issue and can he please start working the ‘phones. Then whichever party’s in power will start showing some sense.
The 30-year Treasury auction was disappointing:
Treasury 30-year bonds declined for a sixth day as the U.S. sold $16 billion of the securities amid concern yields will continue to climb as the Federal Reserve focuses its purchases on shorter-maturity debt.
The bonds drew a yield of 4.32 percent, compared with the average forecast of 4.288 percent in a Bloomberg News survey of eight of the Fed’s 18 primary dealers. The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 2.31, the lowest since November 2009.
In a primer titled A Survival Guide to Bonds, by Rob Carrick of the Globe and Mail, there is a most interesting quote:
“For most of the time in the past 13 years or so, bonds have been negatively correlated to stocks,” explains Michael Herring, managing director and investment strategist at BMO Nesbitt Burns. “When stocks are down, bonds are up. So they provide a nice diversification effect, a counterbalance that dampens the volatility of the overall portfolio.”
That’s not what the Kansas City Fed thinks! In the construction of their Financial Stress Index, they indicate that the “Negative value of correlation between stock and Treasury returns” is an indicator of “Flight to Quality” and therefore a stress indicator. They cite other studies showing that this holds true for other government bond returns; specifically, the measure used is computed over rolling three month periods using the S&P500 and a 2-year Treasury bond index.
MSCI-BARRA published an interesting piece on stock-bond correlation in 2009.
The Canadian preferred share market showed little direction today – for a change! – although volume continued to be high. PerpetualDiscounts lost 3bp, while FixedResets gained 6bp, taking the median weighted average Yield to Worst on the latter index down to 2.84% – yet another new low.
PerpetualDiscounts now yield 5.28%, equivalent to 7.39% interest at the standard equivalency factor of 1.4x. Long Corporates now yiel about 5.3%, so the pre-tax interest-equivalent spread is now about 210bp, a sharp tightening from the 230bp reported on November 3.
| 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 | -0.1270 % | 2,229.2 |
| FixedFloater | 4.94 % | 3.55 % | 27,261 | 19.12 | 1 | -0.2268 % | 3,402.8 |
| Floater | 2.67 % | 2.34 % | 65,952 | 21.40 | 4 | -0.1270 % | 2,407.0 |
| OpRet | 4.78 % | 2.89 % | 80,621 | 1.86 | 9 | 0.0127 % | 2,396.7 |
| SplitShare | 5.84 % | -16.73 % | 67,067 | 0.09 | 2 | 0.1007 % | 2,412.7 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.0127 % | 2,191.6 |
| Perpetual-Premium | 5.62 % | 5.07 % | 162,883 | 2.75 | 24 | 0.0779 % | 2,029.6 |
| Perpetual-Discount | 5.28 % | 5.28 % | 256,830 | 14.86 | 53 | -0.0274 % | 2,067.9 |
| FixedReset | 5.19 % | 2.84 % | 351,316 | 3.21 | 50 | 0.0557 % | 2,297.8 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| GWO.PR.I | Perpetual-Discount | -1.82 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-11-10 Maturity Price : 21.60 Evaluated at bid price : 21.60 Bid-YTW : 5.28 % |
| FTS.PR.G | FixedReset | -1.28 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2013-10-01 Maturity Price : 25.00 Evaluated at bid price : 26.26 Bid-YTW : 3.22 % |
| MFC.PR.C | Perpetual-Discount | -1.06 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-11-10 Maturity Price : 21.42 Evaluated at bid price : 21.42 Bid-YTW : 5.34 % |
| ENB.PR.A | Perpetual-Premium | 1.22 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2010-12-10 Maturity Price : 25.00 Evaluated at bid price : 25.72 Bid-YTW : -30.35 % |
| BAM.PR.M | Perpetual-Discount | 1.66 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-11-10 Maturity Price : 21.47 Evaluated at bid price : 21.47 Bid-YTW : 5.61 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| BNS.PR.Q | FixedReset | 122,290 | RBC crossed blocks of 70,000 and 25,000, both at 26.61. YTW SCENARIO Maturity Type : Call Maturity Date : 2013-11-24 Maturity Price : 25.00 Evaluated at bid price : 26.61 Bid-YTW : 2.75 % |
| TD.PR.M | OpRet | 110,555 | Scotia crossed 97,900 at 25.90. YTW SCENARIO Maturity Type : Call Maturity Date : 2010-12-10 Maturity Price : 25.75 Evaluated at bid price : 25.86 Bid-YTW : 0.88 % |
| HSB.PR.D | Perpetual-Discount | 93,734 | RBC crossed blocks of 32,000 and 27,400, both at 23.48, then another 24,500 at 23.50. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-11-10 Maturity Price : 23.27 Evaluated at bid price : 23.50 Bid-YTW : 5.38 % |
| TD.PR.Y | FixedReset | 76,481 | RBC sold blocks of 10,000 and 21,400 to anonymous, both at 26.75, then crossed 10,700 at 26.72. YTW SCENARIO Maturity Type : Call Maturity Date : 2013-11-30 Maturity Price : 25.00 Evaluated at bid price : 26.75 Bid-YTW : 2.64 % |
| MFC.PR.A | OpRet | 73,532 | Nesbitt crossed 30,000 at 25.60. YTW SCENARIO Maturity Type : Soft Maturity Maturity Date : 2015-12-18 Maturity Price : 25.00 Evaluated at bid price : 25.61 Bid-YTW : 3.72 % |
| TD.PR.E | FixedReset | 44,033 | TD crossed 35,000 at 27.85. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-05-30 Maturity Price : 25.00 Evaluated at bid price : 27.92 Bid-YTW : 2.85 % |
| There were 49 other index-included issues trading in excess of 10,000 shares. | |||
[…] PerpetualDiscounts now yield 5.43%, equivalent to 7.60% interest at the standard equivalency factor of 1.4x. Long Corporates now yield about 5.4%, so the pre-tax interest-equivalent spread (also called the Seniority Spread) is now 220bp, an increase from the 210bp reported on November 10. […]
[…] tightening from the 220bp reported on November 17 … although mind you, it was also 210bp on November 10, when the relevant yields were 5.28%, 7.39% and […]