PrefBlog

CalPERS, the gigantic California pension fund most notable for not doing its own credit analysis, has been told to take a running jump:

Judge Richard Kramer in San Francisco state court said yesterday that the companies’ ratings of three structured investment vehicles that the California Public Employees’ Retirement System lost money on are a form of speech about an issue of public interest that is protected under a state law designed to fend off cases meant to chill public debate.
…
The companies all gave their highest ratings to Cheyne Finance LLC, Stanfield Victoria Funding LLC and Sigma Finance Inc., prompting Calpers to invest $1.3 billion in them in 2006, the fund said in its complaint.

The Australian covered bond market is attracting attention:

Westpac Banking Corp., Commonwealth Bank of Australia, Australia & New Zealand Banking Group Ltd. and National Australia Bank Ltd. may be able to issue three-year covered bonds priced to yield about 50 basis points more than the bank bill swap rate, less than the 85 basis-point spread on senior debt, according to Royal Bank of Scotland Group Plc. Moody’s Investors Service estimates savings of 20 percent.

Covered bonds are “essential weapons as banks look for cheaper and more diversified sources of funding,” John Manning, a credit analyst at RBS in Sydney, said in a telephone interview. Even when global credit markets seized up, European banks “had good access to covered bond markets and were able to access the funding they required at quite commercially acceptable rates,” he said.

The Australian government will amend the law to let financiers issue the securities for the first time, Treasurer Wayne Swan said Dec. 12 as he announced an overhaul package aimed at spurring competition in the banking industry. Global sales of the securities, including Pfandbriefe, as they are known in Germany, have surged 33 percent to a record 329 billion euros ($435 billion) in 2010, according to data compiled by Bloomberg, as investors seek the relative safety of debt backed by both the issuer and an underlying pool of assets.
…
Investors in Europe demand 177 basis points of extra yield to hold covered bonds instead of government debt, according to Bank of America Merrill Lynch’s EMU Covered Bonds index. Spreads average 237 basis points, or 2.37 percentage points, on the region’s financial debt, a separate index shows.

Australia’s government will release draft amendments to the Banking Act to allow the sale of covered securities during the first sitting of Parliament next year, according to a federal document detailing the planned changes.

Allowing covered bonds will help “secure the long-term safety and sustainability” of Australia’s banking system, the document states. Treasury may impose a cap on the amount of covered bonds that each bank can sell, “for example five percent of an issuer’s total Australian assets,” it said.
…
Canadian Imperial Bank of Commerce raised A$750 million in October in the first sale of Australian dollar-denominated covered bonds since the start of the credit crisis in 2007. The Australian laws don’t block overseas banks issuing the notes.

The 5.75 percent notes due December 2013 were priced to yield 91.25 basis points more than similar-maturity government debt, according to a statement at the time. The spread has narrowed to 87 basis points, according to ANZ Bank prices on Bloomberg. A basis point is 0.01 percentage point.

It was clobberin’ time on the Canadian preferred share market, as high volume and losses continued. PerpetualDiscounts got smacked for 42bp, while FixedResets were down 10bp.

The most irritating news of the day was the closing quote on BNA.PR.E, which settled on Friday and has already been forgotten by the underwriters who made a nice little fee for flogging it. It traded 64,885 shares on the day in a range of 24.81-91. So far, so good, right? The closing quote was 22.00-24.80, 20×50. That’s a two dollar and eighty cent spread on issue that closed on the previous trading day. This is a disgrace; the market maker, the exchange and the underwriters should be ashamed of themselves.

One factoid of note is that Scotia was the only broker with any buying interest, responsible for 60,500 of the buy side, leaving only 4,385 for the rest of the street.

Meanwhile, remember GWO.PR.J? It was quoted Friday at 26.40-27.60 after trading 2,457 shares and today traded 5,764 shares in a range of 26.75-95 before closing with a quote of 26.80-60, 1×8.

This is simply not acceptable. Market makers get valuable privileges and if they want to keep them, should be required to earn them.

I have sent the following eMail to the Exchange:

Sirs,

I have not yet received a reply to the eMail below. Can you tell me when I might expect to receive it?

I note additionally that GWO.PR.J had a closing quote 26.40-27.60 on Friday and a quote of 26.80-60. Can you explain why you permit such incompetent market making?

I also note that BNA.PR.E, a new issue which settled on Friday, closed the second trading day of its existence with a quote of 22.00 – 24.80. Why does the Exchange permit such a lackadaisical attitude by those whom it rewards with market making privileges?

I sent the original eMail on December 2.

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	0.2473 %	2,279.9
FixedFloater	4.73 %	3.22 %	27,662	19.00	1	0.0000 %	3,557.5
Floater	2.62 %	2.40 %	51,752	21.24	4	0.2473 %	2,461.7
OpRet	4.81 %	3.46 %	70,954	2.40	8	0.2896 %	2,382.4
SplitShare	5.49 %	0.73 %	118,649	0.99	4	-2.8850 %	2,381.8
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	0.2896 %	2,178.5
Perpetual-Premium	5.72 %	5.61 %	156,596	6.43	27	-0.1549 %	2,002.9
Perpetual-Discount	5.42 %	5.42 %	272,507	14.74	51	-0.4207 %	2,009.7
FixedReset	5.26 %	3.62 %	365,525	3.11	52	-0.1026 %	2,247.1

Performance Highlights
Issue	Index	Change	Notes
BNA.PR.E	SplitShare	-11.65 %	A disgraceful quote that needs to be explained by the Exchange. See discussion in main post. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2017-12-10 Maturity Price : 25.00 Evaluated at bid price : 22.00 Bid-YTW : 7.09 %
CM.PR.G	Perpetual-Discount	-1.90 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-12-13 Maturity Price : 23.98 Evaluated at bid price : 24.26 Bid-YTW : 5.63 %
MFC.PR.E	FixedReset	-1.89 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2014-10-19 Maturity Price : 25.00 Evaluated at bid price : 26.00 Bid-YTW : 4.46 %
PWF.PR.E	Perpetual-Discount	-1.62 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-12-13 Maturity Price : 23.24 Evaluated at bid price : 24.27 Bid-YTW : 5.70 %
GWO.PR.G	Perpetual-Discount	-1.34 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-12-13 Maturity Price : 23.24 Evaluated at bid price : 23.50 Bid-YTW : 5.54 %
MFC.PR.D	FixedReset	-1.29 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2014-07-19 Maturity Price : 25.00 Evaluated at bid price : 26.76 Bid-YTW : 4.49 %
GWO.PR.M	Perpetual-Premium	-1.29 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-12-13 Maturity Price : 24.31 Evaluated at bid price : 24.52 Bid-YTW : 5.93 %
SLF.PR.A	Perpetual-Discount	-1.17 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-12-13 Maturity Price : 21.05 Evaluated at bid price : 21.05 Bid-YTW : 5.66 %
SLF.PR.C	Perpetual-Discount	-1.15 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-12-13 Maturity Price : 19.80 Evaluated at bid price : 19.80 Bid-YTW : 5.64 %
SLF.PR.E	Perpetual-Discount	-1.14 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-12-13 Maturity Price : 19.90 Evaluated at bid price : 19.90 Bid-YTW : 5.67 %
PWF.PR.F	Perpetual-Discount	-1.12 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-12-13 Maturity Price : 23.53 Evaluated at bid price : 23.80 Bid-YTW : 5.58 %
TD.PR.S	FixedReset	-1.03 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2013-08-30 Maturity Price : 25.00 Evaluated at bid price : 25.95 Bid-YTW : 3.67 %
BNS.PR.K	Perpetual-Discount	1.39 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-12-13 Maturity Price : 23.11 Evaluated at bid price : 23.35 Bid-YTW : 5.20 %
GWO.PR.J	FixedReset	1.52 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2014-01-30 Maturity Price : 25.00 Evaluated at bid price : 26.80 Bid-YTW : 3.43 %

Volume Highlights
Issue	Index	Shares Traded	Notes
PWF.PR.E	Perpetual-Discount	91,420	Scotia crossed blocks of 45,700 and 41,300, both at 24.70. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-12-13 Maturity Price : 23.24 Evaluated at bid price : 24.27 Bid-YTW : 5.70 %
CM.PR.K	FixedReset	70,675	TD crossed 11,300 at 26.10; Nesbitt crossed 50,000 at 26.25. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-08-30 Maturity Price : 25.00 Evaluated at bid price : 26.33 Bid-YTW : 3.95 %
MFC.PR.B	Perpetual-Discount	64,894	RBC crossed 38,400 at 20.50. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-12-13 Maturity Price : 20.41 Evaluated at bid price : 20.41 Bid-YTW : 5.73 %
BNA.PR.E	SplitShare	64,885	Recent new issue. See also main post. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2017-12-10 Maturity Price : 25.00 Evaluated at bid price : 22.00 Bid-YTW : 7.09 %
CM.PR.I	Perpetual-Discount	54,804	RBC crossed 35,000 at 22.20. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-12-13 Maturity Price : 21.96 Evaluated at bid price : 22.08 Bid-YTW : 5.39 %
CIU.PR.C	FixedReset	40,364	Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-12-13 Maturity Price : 23.13 Evaluated at bid price : 25.00 Bid-YTW : 3.62 %
There were 48 other index-included issues trading in excess of 10,000 shares.

This entry was posted on Monday, December 13th, 2010 at 10:05 pm and is filed under Market Action. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.