Greek economic prospects darkened as European bickering risked delaying the next rescue payment and defections weakened Prime Minister George Papandreou’s majority.
An emergency session of euro finance chiefs in Brussels yesterday failed to break a deadlock on how to enroll investors in a second bailout without triggering a default, casting doubt on funds due from the International Monetary Fund next month.
“enroll investors without triggering a default”! Having thrown out bankruptcy law, the politicians are now working on commercial law!
The FRB-Kansas City has published a paper by Edward S. Knotek II and Shujaat Khan titled How Do Households Respond to Uncertainty Shocks? (they don’t):
Uncertainty surged during the financial crisis in 2008 and remained high through a considerable portion of the recovery into 2010. Since then, uncertainty has risen again due to the recent oil price spikes and the March 11, 2011, earthquake and tsunami in Japan. This heightened uncertainty raises the question: How does it affect economic activity?
This article focuses on how households respond to uncertainty shocks—sudden, unexpected events that raise the possibility of extreme future outcomes, either good or bad. Economic theory predicts that household purchases would decline immediately following an uncertainty shock because households would find a value in waiting to make big, irreversible purchases to see how the uncertain environment plays out.
The empirical results, however, suggest that uncertainty shocks tend to curtail household spending only modestly. In some cases, these responses manifest themselves only after a considerable period. In addition, uncertainty shocks account for only a small portion of the total fluctuations in household spending. These results suggest that commonly used measures of uncertainty shocks do not appear to be a key factor driving households’ spending decisions and, in turn, economic weakness.
Speaking of uncertainty in the stock market…:
U.S. investors last week pulled the most money from domestic stock funds in six months after equities fell on concerns that the economic recovery may be faltering.
Funds that invest in U.S. stocks lost $5.46 billion in the week ended June 8, the biggest redemptions since the week ended Dec. 8, when investors withdrew $7.6 billion, according to the Washington-based Investment Company Institute. Funds that invest in international equities had $291 million in withdrawals last week, the ICI said today in an e-mail.
There is no word as to whether the authorities are still blaming equity mutual fund outflows on the flash crash of 2010-5-6.
The Yellow Badge of Damage was prominent today:
| YLO Issues, 2011-6-15 | |||||
| Ticker | Quote 6/14 |
Quote 6/15 |
Bid YTW 6/15 |
YTW Scenario 6/15 |
Performance 6/15 (bid/bid) |
| YLO.PR.A | 22.61-74 | 23.23-29 | 9.19% | Soft Maturity 2012-12-30 |
+2.74% |
| YLO.PR.B | 15.54-74 | 15.57-90 | 14.66% | Soft Maturity 2017-06-29 |
+0.19% |
| YLO.PR.C | 15.20-35 | 13.75-90 | 11.81% | Limit Maturity | -9.54% |
| YLO.PR.D | 15.75-88 | 13.94-19 | 11.90% | Limit Maturity | -11.49% |
It was a poor day for the Canadian preferred share market, with PerpetualDiscounts down 9bp, FixedResets losing 9bp and DeemedRetractibles getting hit for 16bp. Not much volatility, volume was again above average.
PerpetualDiscounts now yield 5.51%, equivalent to 7.16% interest at the standard equivalency factor of 1.3x. Long Corporates yield about 5.3%, so the pre-tax interest-equivalent spread is now about 185bp, unchanged from June 1.
| 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 | -0.2441 % | 2,473.9 |
| FixedFloater | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.2441 % | 3,720.7 |
| Floater | 2.45 % | 2.21 % | 41,281 | 21.78 | 4 | -0.2441 % | 2,671.1 |
| OpRet | 4.89 % | 3.44 % | 66,390 | 0.93 | 9 | -0.2062 % | 2,427.6 |
| SplitShare | 5.25 % | -0.26 % | 64,856 | 0.50 | 6 | -0.0546 % | 2,497.6 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.2062 % | 2,219.8 |
| Perpetual-Premium | 5.66 % | 4.77 % | 149,401 | 0.77 | 12 | -0.0493 % | 2,074.2 |
| Perpetual-Discount | 5.46 % | 5.51 % | 119,966 | 14.45 | 18 | -0.0935 % | 2,177.7 |
| FixedReset | 5.16 % | 3.29 % | 190,006 | 2.81 | 57 | -0.0920 % | 2,311.2 |
| Deemed-Retractible | 5.08 % | 4.91 % | 297,267 | 8.17 | 47 | -0.1588 % | 2,153.4 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| RY.PR.H | Deemed-Retractible | -1.36 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2017-06-23 Maturity Price : 25.00 Evaluated at bid price : 26.10 Bid-YTW : 4.90 % |
| HSB.PR.D | Deemed-Retractible | -1.12 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.72 Bid-YTW : 5.14 % |
| GWO.PR.N | FixedReset | 1.63 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.90 Bid-YTW : 3.58 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| TD.PR.N | OpRet | 348,775 | YTW SCENARIO Maturity Type : Call Maturity Date : 2012-05-30 Maturity Price : 25.25 Evaluated at bid price : 25.66 Bid-YTW : 3.44 % |
| BNS.PR.P | FixedReset | 312,485 | YTW SCENARIO Maturity Type : Call Maturity Date : 2013-05-25 Maturity Price : 25.00 Evaluated at bid price : 26.14 Bid-YTW : 2.83 % |
| TD.PR.Y | FixedReset | 305,440 | YTW SCENARIO Maturity Type : Call Maturity Date : 2013-11-30 Maturity Price : 25.00 Evaluated at bid price : 26.25 Bid-YTW : 3.26 % |
| TD.PR.M | OpRet | 166,700 | YTW SCENARIO Maturity Type : Call Maturity Date : 2012-05-30 Maturity Price : 25.25 Evaluated at bid price : 25.65 Bid-YTW : 3.60 % |
| BMO.PR.M | FixedReset | 108,380 | YTW SCENARIO Maturity Type : Call Maturity Date : 2013-09-24 Maturity Price : 25.00 Evaluated at bid price : 26.25 Bid-YTW : 2.73 % |
| CM.PR.I | Deemed-Retractible | 76,550 | YTW SCENARIO Maturity Type : Call Maturity Date : 2016-03-01 Maturity Price : 25.00 Evaluated at bid price : 25.17 Bid-YTW : 4.70 % |
| There were 43 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| HSB.PR.D | Deemed-Retractible | Quote: 24.72 – 25.05 Spot Rate : 0.3300 Average : 0.2238 YTW SCENARIO |
| IAG.PR.F | Deemed-Retractible | Quote: 25.60 – 25.89 Spot Rate : 0.2900 Average : 0.1850 YTW SCENARIO |
| ELF.PR.F | Perpetual-Discount | Quote: 23.01 – 23.36 Spot Rate : 0.3500 Average : 0.2465 YTW SCENARIO |
| MFC.PR.D | FixedReset | Quote: 27.07 – 27.40 Spot Rate : 0.3300 Average : 0.2323 YTW SCENARIO |
| PWF.PR.F | Perpetual-Discount | Quote: 24.31 – 24.64 Spot Rate : 0.3300 Average : 0.2327 YTW SCENARIO |
| NA.PR.P | FixedReset | Quote: 27.61 – 27.90 Spot Rate : 0.2900 Average : 0.2017 YTW SCENARIO |
James: a curious question re: Yellow Media. While the market hammers the common and preferreds, there seems to be a ton of insider buying going on. In fact, most recent report I read, shows insiders buying over $1MM of the PR.A.
Now, do they know something we don’t know, and why would they be acquiring the lowest yielding preferred vs the C which is yielding 12%+ ??
Would they use their new-found cash (from asset sale) to call in some of the preferreds ?
Sorry, mclachlan8, I don’t mean to be rude – but I discussed Yellow Media in the June edition of PrefLetter and it wouldn’t be fair to paying customers to repeat it all here.
[…] interest equivalent spread is now about 195bp, a significant widening from the 185bp reported on June 15 as yields have gone in opposite […]