The big news today is a Moody’s methodological scandal:
Moody’s Investors Service said it’s conducting “a thorough review” of whether a computer error was responsible for assigning Aaa ratings to debt securities that later fell in value.
Some senior staff at Moody’s were aware in early 2007 that constant proportion debt obligations, funds that used borrowed money to bet on credit-default swaps, should have been ranked four levels lower, the Financial Times said, citing internal Moody’s documents. Moody’s altered some assumptions to avoid having to assign lower grades after it corrected the error, the paper said.
Naked Capitalism is ecstatic. Publication of the official release from Moody’s was delayed, but it there … albeit scooped by FT Alphaville.
Heads will roll. And quite rightly.
An Accrued Interest post on Freddie Mac was referred to yesterday. For those interested-but-not-all-that-much in the issue, Jonathan Weill reviews the accounting issues.
On the sub-prime front there is (via FT Alphavill) that UBS is having a close-out special on some sub-prime
UBS sold positions with a nominal value of approximately USD $22 billion to the new fund for an aggregate sale price of approximately USD $15 billion. Based on UBS categorizations, the vast majority of the positions are Subprime and Alt-A in roughly equal parts and the remainder is Prime. The fund purchased the securities using approximately USD $3.75 billion in equity raised by BlackRock from investors and a multi-year collateralized term loan of approximately USD $11.25 billion provided by UBS.
UBS is notorious for having an assets-to-capital multiple that was way off the charts. But, holy smokey! Sixty-Eight cents on the dollar? Since UBS is the seller, we may assume that the great bulk of it, if not all, is AAA tranches … and even Greenlaw forecast a mere 18.9% average loss. I think the Blackrock guys – and their investors – are going to make out like bandits on this.
| 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 | 4.69% | 4.73% | 51,544 | 16.04 | 1 | +0.2020% | 1,082.8 |
| Fixed-Floater | 4.67% | 4.55% | 66,824 | 16.17 | 7 | +0.2123% | 1,071.7 |
| Floater | 4.14% | 4.18% | 63,477 | 17.00 | 2 | -1.6272% | 912.7 |
| Op. Retract | 4.83% | 2.49% | 91,589 | 2.34 | 15 | -0.0192% | 1,055.8 |
| Split-Share | 5.25% | 5.45% | 70,516 | 4.17 | 13 | -0.0008% | 1,059.2 |
| Interest Bearing | 6.10% | 6.11% | 53,666 | 3.81 | 3 | -0.1335% | 1,110.4 |
| Perpetual-Premium | 5.89% | 5.71% | 135,724 | 5.89 | 9 | +0.0178% | 1,022.0 |
| Perpetual-Discount | 5.65% | 5.69% | 300,191 | 14.09 | 63 | +0.0123% | 928.0 |
| Major Price Changes | |||
| Issue | Index | Change | Notes |
| BAM.PR.B | Floater | -2.7237% | |
| W.PR.J | PerpetualDiscount | -1.5241% | Now with a pre-tax bid-YTW of 5.95% based on a bid of 23.26 and a limitMaturity. |
| BAM.PR.H | OpRet | -1.3894% | Now with a pre-tax bid-YTW of 5.38% based on a bid of 25.55 and a softMaturity 2012-3-30 at 25.00. Compare with BAM.PR.I (5.03% to 2013-12-30) and BAM.PR.J (5.48% to 2018-3-30). |
| BNA.PR.B | SplitShare | +1.9917% | Asset coverage of just under 3.2:1 as of April 30, according to the company. Now with a pre-tax bid-YTW of 6.95% based on a bid of 22.02 and a hardMaturity 2016-3-25 at 25.00. Compare with BNA.PR.A (5.79% to 2010-9-30) and BNA.PR.C (6.37% to 2018-1-10). |
| Volume Highlights | |||
| Issue | Index | Volume | Notes |
| TD.PR.R | PerpetualDiscount (for now!) | 115,125 | Now with a pre-tax bid-YTW of 5.66% based on a bid of 25.20 and a limitMaturity. |
| TD.PR.O | PerpetualDiscount | 111,400 | Now with a pre-tax bid-YTW of 5.38% based on a bid of 22.75 and a limitMaturity. |
| NSI.PR.D | Scraps (would be OpRet but there are volume concerns) | 100,800 | Now with a pre-tax bid-YTW of 4.75% based on a bid of 27.00 and a put 2016-2-14 at 24.75. |
| TD.PR.P | PerpetualDiscount | 91,412 | Now with a pre-tax bid-YTW of 5.46% based on a bid of 24.23 and a limitMaturity. |
| PWF.PR.F | PerpetualDiscount | 85,000 | Now with a pre-tax bid-YTW of 5.63% based on a bid of 23.50 and a limitMaturity. |
| BCE.PR.Z | FixFloat | 82,684 | |
There were forty-two other index-included $25-pv-equivalent issues trading over 10,000 shares today.
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