US Jobs number MUCH better than feared! Canadian Jobs number GREAT! Merrill thumped on credit quality! Citigroup thumped on credit quality! Canaccord thumped on credit quality! (Canaccord? Who is this “Canaccord”?) SIV chatter! (nothing much new)
There won’t be much commentary today, I’m afraid. I’m exhausted.
There is a highly illuminating discussion on FWF the possibility of, and the repercussions of, a bank “breaking the buck” on a money market fund:
If any Canadian bank broke the buck on one of its MMF and walked away from it, I would sell all of my mutual funds not just any MMF that I owned as well as my fundco stocks and never buy again. Reason: no bank/fundco is to be trusted. (Although MMFs are not guaranteed, their history is such that they might as well be.)
I hope that the Canadian Bank Regulator is reading this thread!
We remember that National Bank bailed out its MMF:
Altamira Investment Services Inc., manager of the Altamira Mutual Funds, announced that National Bank of Canada has completed the acquisition, announced on August 20th, of all the asset backed commercial paper (“ABCP”) held by the Altamira Mutual Funds.
Wachovia has also purchased ABCP from its MMF:
In addition, late last week Wachovia Corp. revealed that it had booked a $40 million loss on asset-backed securities that it purchased from the portfolio of money-market funds run by its Evergreen Investments money-management unit in August.
I imagine there’s others – feel free to advise me of them.
If this kind of thing makes good business sense for the banks – then good for them! I am well aware that their profits on funds are utterly ridiculous and well worth protecting.
However: if bank-sponsored MMFs are really “covered bank deposits” … they should be booked like covered bank deposits!
There should be full consolidation of all MMFs onto the banks’ balance sheets; the investments should be fully reflected in the risk-weighted assets. Otherwise, we are allowing implicit support of the the banks’ various off-balance sheet activities (like SIVs, MMFs and other investment vehicles) without properly accounting for the risk; this endangers the stability of the financial system, as well as providing a subsidy (via deposit insurance and Bank of Canada credit lines) to certain fundcos, but not to other fundcos.
Another good day for the perpetual sector! (Geez, you know, it’s been a long time since I’ve made that comment!)
Still lots of yield-wierdnesses, but volume is still good. Don’t misunderstand me … I’m not saying I don’t like yield-wierdnesses … but I want them to develop until exactly the time I take a position and then revert.
| Note that these indices are experimental; the absolute and relative daily values are expected to change in the final version. In this version, index values are based at 1,000.0 on 2006-6-30 | |||||||
| Index | Mean Current Yield (at bid) | Mean YTW | Mean Average Trading Value | Mean Mod Dur (YTW) | Issues | Day’s Perf. | Index Value |
| Ratchet | 4.94% | 4.92% | 215,244 | 15.60 | 2 | -0.0817% | 1,045.0 |
| Fixed-Floater | 4.82% | 4.82% | 87,564 | 15.82 | 8 | +0.0564% | 1,045.3 |
| Floater | 4.51% | 3.86% | 63,068 | 10.68 | 3 | -0.2859% | 1,041.5 |
| Op. Retract | 4.88% | 4.05% | 76,159 | 3.76 | 16 | +0.0441% | 1,027.0 |
| Split-Share | 5.18% | 5.08% | 87,209 | 4.04 | 15 | +0.0899% | 1,042.1 |
| Interest Bearing | 6.26% | 6.33% | 60,300 | 3.57 | 4 | -0.3994% | 1,056.7 |
| Perpetual-Premium | 5.81% | 5.43% | 80,161 | 4.51 | 11 | +0.3582% | 1,011.7 |
| Perpetual-Discount | 5.53% | 5.56% | 336,548 | 14.33 | 55 | +0.4475% | 912.4 |
| Major Price Changes | |||
| Issue | Index | Change | Notes |
| BSD.PR.A | InterestBearing | -1.4815% | Asset coverage of just under 1.8:1 as of October 31, according to Brookfield Funds. Now with a pre-tax bid-YTW of 7.43% based on a bid of 9.31 and a hardMaturity 2015-3-31 at 10.00. |
| CM.PR.A | OpRet | -1.4286% | Now with a pre-tax bid-YTW of 4.73% based on a bid of 25.53 and a softMaturity 2011-7-30 at 25.00. |
| CU.PR.A | PerpetualPremium | +1.01% | Now with a pre-tax bid-YTW of 5.06% based on a bid of 26.01 and a call 2012-3-31 at 25.00. |
| IAG.PR.A | PerpetualDiscount | +1.0763% | Now with a pre-tax bid-YTW of 5.64% based on a bid of 20.66 and a limitMaturity. |
| RY.PR.W | PerpetualDiscount | +1.2184% | Now with a pre-tax bid-YTW of 5.47% based on a bid of 22.43 and a limitMaturity. |
| BNS.PR.K | PerpetualDiscount | +1.3158% | Now with a pre-tax bid-YTW of 5.22% based on a bid of 23.10 and a limitMaturity. |
| RY.PR.E | PerpetualDiscount | +1.3216% | Now with a pre-tax bid-YTW of 5.45% based on a bid of 20.70 and a limitMaturity. |
| MFC.PR.B | PerpetualDiscount | +1.3420% | Now with a pre-tax bid-YTW of 5.38% based on a bid of 21.90 and a limitMaturity. |
| CL.PR.B | PerpetualPremium | +1.3725% | Now with a pre-tax bid-YTW of 5.34% based on a bid of 25.85 and a call 2011-1-30 at 25.00. |
| PIC.PR.A | SplitShare | +1.5161% | Now with a pre-tax bid-YTW of 4.82% based on a bid of 15.40 and a hardMaturity 2010-11-1 at 15.00. |
| PWF.PR.K | PerpetualDiscount | +1.7625% | Now with a pre-tax bid-YTW of 5.68% based on a bid of 21.94 and a limitMaturity. |
| BNS.PR.J | PerpetualDiscount (for now!) | +1.87% | Now with a pre-tax bid-YTW of 5.16% based on a bid of 25.09 and a limitMaturity. |
| BMO.PR.H | PerpetualDiscount (for now!) | +2.1722% | Now with a pre-tax bid-YTW of 4.91% based on a bid of 25.40 and a call 2013-3-27 at 25.00. |
| Volume Highlights | |||
| Issue | Index | Volume | Notes |
| BNS.PR.L | PerpetualDiscount | 64,225 | Nesbitt bought 21,400 from National at 21.00. Now with a pre-tax bid-YTW of 5.39% based on a bid of 21.03 and a limitMaturity. |
| BNS.PR.M | PerpetualDiscount | 58,800 | Now with a pre-tax bid-YTW of 5.39% based on a bid of 21.01 and a limitMaturity. |
| PWF.PR.E | PerpetualDiscount | 52,000 | Nesbitt crossed 50,000 at 24.50. Now with a pre-tax bid-YTW of 5.63% based on a bid of 24.29 and a limitMaturity. |
| RY.PR.D | PerpetualDiscount | 28,500 | Now with a pre-tax bid-YTW of 5.46% based on a bid of 20.68 and a limitMaturity. |
| GWO.PR.E | OpRet | 27,710 | Now with a pre-tax bid-YTW of 4.36% based on a bid of 25.41 and a call 2011-4-30 at 25.00. |
There were twenty-two other index-included $25.00-equivalent issues trading over 10,000 shares today.
Well, on a day where discount prefs finally made up some ground, BAM.PR.N is nowhere to be seen in the volume report. It finished dead unchanged — making it difficult to tell whether it will participate in any potential rally.
Anyway, conditions were right today, so I entered an arbitrage trade shorting 1000 BAM.PR.M and buying 1000 BAM.PR.N at an opening spread of $1.07. I was fortunate that TD Waterhouse would let me short the Pref M, while E*Trade denied a short of 1500 shares 7-10 days ago.
If I can get out at a spread of $0.15 (conservative, considering historical closing spreads have been down to -0.60 i.e. Pref M LOWER than Pref N by 60 cents) by year end, I would make $0.92 – 0.04 (costs) on a cash investment of $18.28 for the Pref N’s = 4.8% in two months with ZERO credit risk (and taxed as a capital gain). Now that’s the kind of arbitrage trade I like — although writing about it cuts into my potential profit per hour of work.
I especially love this blog for pointing out loads of arbitrage opportunities in an inefficient pref share market. This is my third this year. Now, if we can only see if IQW.PR.C is going to be converted and present a decent arbitrage opportunity with more liquidity!
Thank you James!
I was surprised to see that the BAM issues did not participate in the rally – but the BAM issues are just plain weird. The common (OK, they’re not common, they’re SVS. Sue me.) was down almost 8% today on disappointing earnings, so maybe the real surprise was that they were able to hang in there.
I’m just pleased to see that volume on the Ns has been over 10,000 on a regular basis since about mid-September – to be sure, at well below the price where I would have assumed greed would equal fear, but what do I know? Perhaps once all 8-million shares have been distributed, one lot at a time, the issue will start behaving normally. Or maybe it will start behaving normally tomorrow! You can just never tell.
Thanks for the compliments and good luck!
Two points:
1. BAM J and H had an uptick Friday, while BAM.PR.I was flat. Thus, we can argue and hope the BAM “family” of prefs responded more to interest rates than to weak earnings.
2. The cumulative BAM.PR.N volume since May 9 IPO is only 1.7M shares, while BAM.PR.M was 1.2M. Hopefully we don’t have to wait another two years for the 8M shares to be distributed….
[…] Amazingly, it now has the same quote as the virtually identical BAM.PR.M. I know one assiduous reader who will be quite pleased with this symmetry! Now with a pre-tax bid-YTW of 6.69% based on a bid of 18.10 and a limitMaturity. […]