Moody’s put Spain on Review-Negative:
Spain faces a possible downgrade by Moody’s Investors Service as its regions struggle to cut budget deficits and last week’s Greek bailout increases the risk that bondholders will have to pay for further European rescues.
Moody’s is reviewing the nation’s Aa2 classification, the ratings company said in a statement today. A cut would probably be “limited to one notch,” Moody’s said. The euro fell. Spain has the same credit rating as Italy, which is also on review for downgrade at Moody’s.
The trouble with regulators, as a class, is their inability to think things through. Increased transparency in the public bond market has brought with it reduction of choice for public investors, as more deals are done on a private placement basis, and thinner markets for the ones that remain, as capital gets redeployed to more profitable areas. Another example of this is hedge fund regulation:
There’s a two-word explanation for closing what was once one of the world’s biggest hedge funds and consistently one of the best-performing — with returns of about 30 percent annually in its first 30 years: Dodd-Frank. The law requires hedge funds to register with the Securities and Exchange Commission and provide information about customers, employees and assets. By returning outsiders’ money, Soros Fund Management escapes that rule and the loss of privacy that goes with it.
“An unfortunate consequence of these new circumstances is that we will no longer be able to manage assets for anyone other than a family client as defined under the regulations,” the brothers wrote in a letter to investors.
Or maybe regulators do think things through – a regulator’s ideal world is one in which everybody holds only plain-vanilla investments, nobody every complains and regulators are never subjected to criticism, informed or otherwise.
I would love to offer Malachite Aggressive Preferred Fund to the general public … but the process isn’t just expensive, it’s stupid expensive. To make such an idea work, I would have to convert my firm into just another marketting and distribution firm, with investment management tacked on as an unfortunate operating expense to be minimized.
There has been lots of noise about the City of Toronto cost-cutting programme … the problem as I see it is not so much that the City is doing things it doesn’t need to do (although there’s plenty of that) as it is that it grossly overpays for what it does. Take librarians, for example. CUPE BC claims that Toronto librarians make almost $35/hr – and that report was dated June, 2007! Add pension and benefits to that and I’ll bet there’s not much change from $100,000 annually. My girlfriend tells me that when she goes to the library and uses the scanner to check out books, there are generally three – count ’em, three – librarians watching her do it.
YLO closed the Trader Corp. deal yesterday, but it didn’t do them much good on the market as three of their four preferreds were down significantly on the day (bid/bid) – the exception was the short-term retractible, YLO.PR.A.
These issues did horribly on the month, occupying four of the bottom six positions on the total returns ranking of the HIMIPref™ universe: only YLD.PR.B (worst) and BBD.PR.D (fifth worst) managed to break the hegemony. Total returns for the YLO prefs ranged from -6.4% (YLO.PR.A) to -18.4% (YLO.PR.D).
The Canadian preferred share market closed the month on a mixed note,with PerpetualDiscounts down 2bp, FixedResets down 2bp and DeemedRetractibles gaining 7bp. Volatility was low. Volume was … pretty close to non-existent!
PerpetualDiscounts now yield 5.44%, equivalent to 7.07% interest at the standard equivalency factor of 1.3x. Long Corporates now yield about 5.1% (maybe a little under) (!) so the pre-tax interest-equivalent spread is now about 200bp, a widening from the 185bp reported on July 27 as the two yields have moved in opposite directions over the past two days.
And that’s it for another month!
| 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 | -1.1669 % | 2,420.8 |
| FixedFloater | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -1.1669 % | 3,640.9 |
| Floater | 2.50 % | 2.33 % | 35,393 | 21.47 | 4 | -1.1669 % | 2,613.8 |
| OpRet | 4.85 % | 2.31 % | 55,997 | 0.17 | 9 | -0.1322 % | 2,454.5 |
| SplitShare | 5.24 % | 2.15 % | 52,341 | 0.57 | 6 | 0.0379 % | 2,512.5 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.1322 % | 2,244.4 |
| Perpetual-Premium | 5.67 % | 4.89 % | 130,516 | 0.81 | 13 | 0.0959 % | 2,096.1 |
| Perpetual-Discount | 5.41 % | 5.44 % | 109,798 | 14.76 | 17 | -0.0247 % | 2,214.7 |
| FixedReset | 5.15 % | 3.16 % | 217,897 | 2.63 | 58 | -0.0229 % | 2,325.5 |
| Deemed-Retractible | 5.06 % | 4.69 % | 275,258 | 7.84 | 47 | 0.0745 % | 2,179.1 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| PWF.PR.A | Floater | -4.05 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2041-07-29 Maturity Price : 22.03 Evaluated at bid price : 22.26 Bid-YTW : 2.33 % |
| PWF.PR.E | Perpetual-Discount | -1.03 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2041-07-29 Maturity Price : 23.68 Evaluated at bid price : 24.89 Bid-YTW : 5.49 % |
| FTS.PR.G | FixedReset | 1.08 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2013-09-01 Maturity Price : 25.00 Evaluated at bid price : 26.25 Bid-YTW : 3.19 % |
| IAG.PR.F | Deemed-Retractible | 1.15 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 26.30 Bid-YTW : 5.34 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| IFC.PR.A | FixedReset | 31,562 | Recent new issue. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.01 Bid-YTW : 4.09 % |
| BNS.PR.Y | FixedReset | 26,805 | National crossed 25,000 at 25.34. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.17 Bid-YTW : 3.28 % |
| RY.PR.W | Perpetual-Discount | 23,420 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2041-07-29 Maturity Price : 24.43 Evaluated at bid price : 24.75 Bid-YTW : 4.94 % |
| RY.PR.A | Deemed-Retractible | 20,811 | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.71 Bid-YTW : 4.58 % |
| MFC.PR.F | FixedReset | 19,524 | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.03 Bid-YTW : 3.88 % |
| TD.PR.G | FixedReset | 17,044 | YTW SCENARIO Maturity Type : Call Maturity Date : 2014-04-30 Maturity Price : 25.00 Evaluated at bid price : 27.19 Bid-YTW : 2.91 % |
| There were 11 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| PWF.PR.A | Floater | Quote: 22.26 – 23.24 Spot Rate : 0.9800 Average : 0.7181 YTW SCENARIO |
| NEW.PR.C | SplitShare | Quote: 14.25 – 14.69 Spot Rate : 0.4400 Average : 0.2682 YTW SCENARIO |
| CIU.PR.C | FixedReset | Quote: 25.01 – 25.81 Spot Rate : 0.8000 Average : 0.6451 YTW SCENARIO |
| RY.PR.Y | FixedReset | Quote: 27.20 – 27.64 Spot Rate : 0.4400 Average : 0.2865 YTW SCENARIO |
| PWF.PR.E | Perpetual-Discount | Quote: 24.89 – 25.20 Spot Rate : 0.3100 Average : 0.1945 YTW SCENARIO |
| FTS.PR.E | OpRet | Quote: 27.08 – 27.48 Spot Rate : 0.4000 Average : 0.2979 YTW SCENARIO |