December 30, 2010

It has been a great year for corporate debt issuance:

Rabobank Nederland, the world’s largest agricultural lender, and Fairfield, Connecticut-based General Electric Co.’s finance unit led $3.19 trillion of offerings, according to data compiled by Bloomberg. Ally Financial Inc., Ford Motor Credit Co. and 509 other speculative-grade companies sold $287 billion of debt in the U.S., smashing the previous record of $162.7 billion in 2009.

Signs the global economic recovery is gaining strength encouraged investors to lend money to borrowers at lower interest rates, allowing Johnson & Johnson and Wal-Mart Stores Inc. to sell bonds at what were then record-low coupons. In the U.S., bond funds took in $234.8 billion this year through October, while investors withdrew money from stock funds, according to the Investment Company Institute in Washington.

Sales still declined 18 percent from last year’s $3.88 trillion as governments withdrew bond guarantees for financial companies trying to weather the credit crisis. Concern that Europe’s sovereign debt crisis would worsen slowed sales in the region.

BIS has released a working paper by Marc Flandreau, Norbert Gaillard and Frank Packer titled To err is human: rating agencies and the interwar foreign government debt crisis:

During the 1930s, rating agencies took up a central role in regulatory supervision that they still have today. The proximate cause for this changeover was the economic shock of the Great Depression. Exploring the performance of rating agencies in assessing the risks of sovereign debt, an important segment of the bond market, we do not find that superior forecasting capacities can explain the agencies’ growing importance.

This paper makes a contribution to this emerging literature on the history of ratings by focusing on the assessment of foreign government debt by US rating agencies during the interwar period. There are two reasons for this focus. … Second, looking at the government debt crisis may add a useful perspective on what remains one of the most (perhaps the most) violent foreign debt disaster in financial history. Between 1931 and 1939, more than half of sovereign borrowers who had issued in New York during 1920–29 defaulted. The episode, an integral part of the catastrophic interwar financial system dislocation, has not yet been studied from this vantage point, although many other aspects of the crisis have been discussed in detail.

We document a large degree of procyclicality of ratings over the period. Perhaps more surprisingly, rating agencies do not appear to have performed particularly well relative to financial markets in forecasting the approaching mess: when we compare the predictive power of agency ratings with that of synthetic ratings based on market yields, we find little that suggests strongly superior performance. Our results leave open the reasons for the emergence of ratings as regulators’ preferred instrument, for superior performance does not appear to have motivated the initial regulatory use of ratings.

Gee, it’s a good thing we’re so much smarter now than they were in the thirties, eh? Imagine, sovereign defaults, depression, the rise of authoritarianism … thank God that could never happen again.

Spain has cut its financing requirements:

Spain’s Treasury said it had managed to cut borrowing from markets in 2010 and would do so again in 2011 because of austerity measures adopted by the government.

For the year ahead, the Treasury estimated net financing needs of &eur;47.2-billion ($62.4-billion) — a decline of 24%from 2010.

But the figure was slightly higher than previously announced because of the country’s &eur;3.588-billion contribution to a European financial rescue for Greece.

Net bond issues in 2010 amounted to €62.1-billion, compared to the &eur;76.8-million forecast at the start of the year, the Treasury said. It was a sharp decline from the &eur;116.7-billion in net bond issues for 2009.

Financing needs declined in 2010 “because of the fiscal austerity measures put in place by the government mid-year to strengthen the stabilization of public accounts.”

PrefBlog doesn’t have a very long list of favourite politicians, but Pennsylvania Governor Ed Rendell comes close:

His latest pronouncement came on Sunday after the National Football League’s rare postponement of a game due to a forecast of snow. In Rendell’s world, real men live to make a touchdown in the snow.

“This is football. Football’s played in bad weather,” Rendell said before the storm struck his city on Sunday but after the NFL had postponed the Sunday-night game.

“We’ve become a nation of wusses,” Rendell declared. “The Chinese are kicking our butt in everything. If this was in China do you think the Chinese would have called off the game? People would have been marching down to the stadium, they would have walked and they would have been doing calculus on the way down.”

It’s a good column. Later on, the author states:

Pre-wussification, we were an economic powerhouse, and our children were the best-educated in the world, until we decided to sheathe our little princes and princesses in bubble wrap. We give them graduation ceremonies for getting through nursery school, a trophy just for showing up at soccer. We’ve removed play from the playground to keep them from scraping a knee. We intervene like lawyers in every dispute.

For sure. Look at the recent case of Greg Walsh. He was coaching a team of 16-year-olds when:

At the game in question, [black player Andrew] McCullum and a player on the opposing Austin Trophies team were sent to the penalty box after a confrontation. There, two game officials witnessed the player call McCullum “the N-word.”

The other boy’s coach benched him for the rest of the second period, but when he rejoined the ice at the beginning of the third period without anyone coming over to apologize or offer an explanation, Walsh was outraged.

The whole team agreed to forfeit the game they were winning in support of McCullum.

Walsh was suspended for a year by the OMHA, amidst controversy – the Star made this a cause celebre, canonizing the coach for ‘standing by his player’..

Think about it. These were two 16-17 year old boys, more balls than brains if my memories of adolescence can be trusted, they had been in a “confrontation” on the ice for which they had been penalized, they were jawing back and forth at each other in the penalty box … It certainly doesn’t sound like anything was either organized or premeditated. What message is the Star sending here? “If you’re involved in an activity and somebody calls you a nasty name, then what you should do is run home crying to mommy”, that’s what it sounds like to me.

Jackie Robinson wouldn’t have been able to even watch a major league game with that attitude.

It was another very slow day in the Canadian preferred share market, but the rally was hot enough, as PerpetualDiscounts gained 18bp and FixedResets were up 11bp.

HIMIPref™ Preferred Indices
These values reflect the December 2008 revision of the HIMIPref™ Indices

Values are provisional and are finalized monthly
Index Mean
(at bid)
Mod Dur
Issues Day’s Perf. Index Value
Ratchet 0.00 % 0.00 % 0 0.00 0 0.1852 % 2,310.1
FixedFloater 4.81 % 3.53 % 30,162 18.94 1 0.3554 % 3,494.1
Floater 2.59 % 2.37 % 51,881 21.28 4 0.1852 % 2,494.3
OpRet 4.78 % 3.31 % 63,828 2.35 8 0.1438 % 2,398.4
SplitShare 5.34 % 1.28 % 779,820 0.94 4 0.0050 % 2,444.8
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.1438 % 2,193.2
Perpetual-Premium 5.69 % 5.54 % 148,542 5.40 27 0.1172 % 2,019.0
Perpetual-Discount 5.40 % 5.45 % 274,135 14.75 51 0.1759 % 2,029.2
FixedReset 5.22 % 3.32 % 330,199 3.10 52 0.1084 % 2,273.0
Performance Highlights
Issue Index Change Notes
TD.PR.P Perpetual-Discount -1.89 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-12-30
Maturity Price : 24.67
Evaluated at bid price : 24.91
Bid-YTW : 5.35 %
ELF.PR.F Perpetual-Discount -1.58 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-12-30
Maturity Price : 21.85
Evaluated at bid price : 21.85
Bid-YTW : 6.09 %
SLF.PR.B Perpetual-Discount 1.01 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-12-30
Maturity Price : 21.72
Evaluated at bid price : 22.03
Bid-YTW : 5.46 %
NA.PR.N FixedReset 1.16 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-09-14
Maturity Price : 25.00
Evaluated at bid price : 27.01
Bid-YTW : 2.47 %
BNS.PR.K Perpetual-Discount 1.27 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-12-30
Maturity Price : 23.34
Evaluated at bid price : 23.60
Bid-YTW : 5.08 %
NA.PR.M Perpetual-Premium 1.42 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-06-14
Maturity Price : 25.00
Evaluated at bid price : 26.38
Bid-YTW : 5.16 %
Volume Highlights
Issue Index Shares
RY.PR.Y FixedReset 86,220 Nesbitt crossed 80,000 at 27.59.
Maturity Type : Call
Maturity Date : 2014-12-24
Maturity Price : 25.00
Evaluated at bid price : 27.60
Bid-YTW : 3.49 %
CM.PR.H Perpetual-Discount 29,567 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-12-30
Maturity Price : 22.34
Evaluated at bid price : 22.52
Bid-YTW : 5.32 %
BNS.PR.L Perpetual-Discount 13,521 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-12-30
Maturity Price : 21.93
Evaluated at bid price : 22.05
Bid-YTW : 5.10 %
BNS.PR.M Perpetual-Discount 12,591 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-12-30
Maturity Price : 21.89
Evaluated at bid price : 22.00
Bid-YTW : 5.11 %
PWF.PR.K Perpetual-Discount 12,589 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-12-30
Maturity Price : 22.61
Evaluated at bid price : 22.80
Bid-YTW : 5.51 %
RY.PR.A Perpetual-Discount 12,337 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-12-30
Maturity Price : 21.62
Evaluated at bid price : 21.95
Bid-YTW : 5.11 %
There were 3 other index-included issues trading in excess of 10,000 shares.

One Response to “December 30, 2010”

  1. […] mentioned the Greg Walsh kerfuffle briefly on December 30 – he’s the Peterborough hockey coach who had hysterics when one of his players was […]

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