The MMF industry is resisting even the ineffective reforms proposed by the SEC:
The compromise, unanimously approved by SEC commissioners June 5, would harm investors and the economy, and would increase systemic risk, the Investment Company Institute said today. The group supported an alternative option offered by the SEC to limit withdrawals when funds come under stress.
“Our opposition to floating NAV remains as firm as ever,” Paul Schott Stevens, president of the Washington-based ICI, said in the text of a speech he is scheduled to deliver today in Baltimore. “Forcing funds to float their NAVs doesn’t address the problem.”
The plan would exempt funds that buy only U.S. government-backed securities and retail funds, a concession regulators made to address concerns of fund providers.
…
The commission’s proposal includes the option of allowing a fund’s board to temporarily halt withdrawals and require it to impose a fee of 2 percent on all redemptions if the fund’s weekly liquid assets fell below 15 percent of total assets. The commission left open the option of adopting either floating NAV or withdrawal restrictions, or both together.“Liquidity fees and gates precisely address the core problem that regulators express greatest concern about: heavy redemption pressure in periods of market turmoil,” Schott said in his speech at a conference organized by research firm Crane Data LLC.
Of course, they do nothing to address the core problem of default in the underlying portfolio, but who cares?
The Fed released the FOMC statement:
The Committee sees the downside risks to the outlook for the economy and the labor market as having diminished since the fall.
The Committee will closely monitor incoming information on economic and financial developments in coming months. The Committee will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability. The Committee is prepared to increase or reduce the pace of its purchases to maintain appropriate policy accommodation as the outlook for the labor market or inflation changes. In determining the size, pace, and composition of its asset purchases, the Committee will continue to take appropriate account of the likely efficacy and costs of such purchases as well as the extent of progress toward its economic objectives.
To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored.
…
Voting against the action was James Bullard, who believed that the Committee should signal more strongly its willingness to defend its inflation goal in light of recent low inflation readings, and Esther L. George, who was concerned that the continued high level of monetary accommodation increased the risks of future economic and financial imbalances and, over time, could cause an increase in long-term inflation expectations.
Bernanke added a little colour at the press conference (emphasis added because the Globe did):
Federal Reserve Chairman Ben S. Bernanke said the central bank may start reducing bond purchases later this year and end them in the middle of 2014 if the economy continues to improve as the central bank forecasts.
“If the incoming data are broadly consistent with this forecast, the committee currently anticipates that it would be appropriate to moderate the pace of purchases later this year,” Bernanke said today in a press conference in Washington. “If the subsequent data remain broadly aligned with our current expectations for the economy, we will continue to reduce the pace of purchases in measured steps through the first half of next year, ending purchases around mid-year.”
Market reaction was modestly negative:
U.S. stocks retreated, following a two-day rally in the Standard & Poor’s 500 Index, as the Federal Reserve said risks to the economy have decreased, spurring concern the central bank will reduce its stimulus efforts.
Eight of 10 groups in the S&P 500 fell, even as the Fed said it will keep buying bonds at a pace of $85 billion a month. Utility and phone shares fell the most, extending losses to at least 0.5 percent.
Switzerland is resisting US hegemony:
Swiss parliament rejected a bill designed to resolve a dispute over undeclared bank accounts held by U.S. citizens, potentially setting the stage for American prosecution of the country’s banks.
Members of parliament’s lower house voted 123 to 63 against the bill, which would have allowed Swiss banks to cooperate with the U.S. and to settle a long-running dispute over wealthy American tax evaders. The government has said it has no plan B, in the event of the bill failing to pass.
Today’s award for disingenuity is given to David Phillips of First Leaside:
He said he was delighted with the findings of a third-party report prepared by accounting firm Grant Thornton Ltd. in August, 2011, which concluded First Leaside needed to raise money to remain viable. The OSC has asked First Leaside to commission the review because it was concerned about the firm’s health.
Mr. Phillips said he saw the report as an “affirmation” and “vindication” of his strategy and thought it would address the OSC’s worries. He said it was unsurprising to him that Grant Thornton said the firm needed to raise cash to remain viable, because that was always the case for an investment company.
…
The report said First Leaside’s viability hinged on its ability to raise new funds from investors because it did not have enough cash to support its operations, and said the company had an “equity deficit” because its real estate assets were worth less than their outstanding mortgages.
It was back to carnage as usual for the Canadian preferred share market, with PerpetualPremiums losing 33bp, FixedResets off 21bp and DeemedRetractibles down 29bp. The Performance Highlights table is suitably gory, with only one winner among many, many losers – many of them Brookfield issues. Volume was quite high.
| 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 | -0.0130 % | 2,568.9 |
| FixedFloater | 4.29 % | 3.62 % | 45,198 | 18.06 | 1 | -1.5556 % | 3,830.8 |
| Floater | 2.73 % | 2.89 % | 79,879 | 20.02 | 4 | -0.0130 % | 2,773.7 |
| OpRet | 4.85 % | 2.47 % | 65,282 | 0.08 | 5 | -0.0312 % | 2,617.2 |
| SplitShare | 4.66 % | 4.26 % | 103,251 | 4.01 | 6 | -0.3687 % | 2,970.3 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.0312 % | 2,393.2 |
| Perpetual-Premium | 5.34 % | 4.98 % | 122,224 | 6.34 | 33 | -0.3268 % | 2,316.4 |
| Perpetual-Discount | 5.40 % | 5.47 % | 235,665 | 14.77 | 5 | -1.3404 % | 2,419.0 |
| FixedReset | 4.96 % | 3.22 % | 238,975 | 3.28 | 81 | -0.2110 % | 2,487.6 |
| Deemed-Retractible | 5.02 % | 4.68 % | 165,493 | 4.92 | 44 | -0.2857 % | 2,399.0 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| BAM.PR.M | Perpetual-Discount | -2.97 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-06-19 Maturity Price : 21.56 Evaluated at bid price : 21.56 Bid-YTW : 5.53 % |
| MFC.PR.J | FixedReset | -2.68 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2018-03-19 Maturity Price : 25.00 Evaluated at bid price : 25.07 Bid-YTW : 3.95 % |
| GWO.PR.N | FixedReset | -2.38 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.76 Bid-YTW : 3.56 % |
| BAM.PF.C | Perpetual-Discount | -2.19 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-06-19 Maturity Price : 21.55 Evaluated at bid price : 21.86 Bid-YTW : 5.55 % |
| CU.PR.F | Perpetual-Premium | -2.11 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-06-19 Maturity Price : 22.82 Evaluated at bid price : 23.20 Bid-YTW : 4.87 % |
| HSE.PR.A | FixedReset | -1.57 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-06-19 Maturity Price : 23.23 Evaluated at bid price : 24.50 Bid-YTW : 3.40 % |
| BAM.PR.G | FixedFloater | -1.56 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-06-19 Maturity Price : 22.57 Evaluated at bid price : 22.15 Bid-YTW : 3.62 % |
| BNA.PR.C | SplitShare | -1.49 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2019-01-10 Maturity Price : 25.00 Evaluated at bid price : 24.54 Bid-YTW : 4.79 % |
| BAM.PR.N | Perpetual-Discount | -1.45 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-06-19 Maturity Price : 21.80 Evaluated at bid price : 21.80 Bid-YTW : 5.47 % |
| PWF.PR.P | FixedReset | -1.38 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-06-19 Maturity Price : 23.43 Evaluated at bid price : 24.95 Bid-YTW : 3.22 % |
| FTS.PR.G | FixedReset | -1.38 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-06-19 Maturity Price : 23.28 Evaluated at bid price : 24.31 Bid-YTW : 3.70 % |
| SLF.PR.A | Deemed-Retractible | -1.23 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.36 Bid-YTW : 5.54 % |
| MFC.PR.C | Deemed-Retractible | -1.18 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.58 Bid-YTW : 5.68 % |
| ENB.PR.H | FixedReset | -1.16 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-06-19 Maturity Price : 23.03 Evaluated at bid price : 24.66 Bid-YTW : 3.69 % |
| BNS.PR.K | Deemed-Retractible | -1.11 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.94 Bid-YTW : 4.96 % |
| BAM.PF.A | FixedReset | -1.10 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-06-19 Maturity Price : 23.21 Evaluated at bid price : 25.20 Bid-YTW : 4.29 % |
| SLF.PR.B | Deemed-Retractible | -1.10 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.41 Bid-YTW : 5.57 % |
| CU.PR.G | Perpetual-Premium | -1.09 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-06-19 Maturity Price : 23.09 Evaluated at bid price : 23.50 Bid-YTW : 4.82 % |
| PWF.PR.S | Perpetual-Premium | -1.02 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-06-19 Maturity Price : 23.99 Evaluated at bid price : 24.35 Bid-YTW : 4.98 % |
| MFC.PR.F | FixedReset | 1.02 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.75 Bid-YTW : 3.41 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| TD.PR.I | FixedReset | 153,565 | TD crossed 74,900 at 26.25; RBC crossed 75,000 at the same price. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-07-31 Maturity Price : 25.00 Evaluated at bid price : 26.25 Bid-YTW : 2.48 % |
| CU.PR.G | Perpetual-Premium | 105,725 | Desjardins crossed 75,000 at 23.75. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-06-19 Maturity Price : 23.09 Evaluated at bid price : 23.50 Bid-YTW : 4.82 % |
| BAM.PF.D | Perpetual-Discount | 96,817 | Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-06-19 Maturity Price : 22.59 Evaluated at bid price : 22.91 Bid-YTW : 5.37 % |
| NA.PR.L | Deemed-Retractible | 79,126 | TD crossed 75,000 at 25.15. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.10 Bid-YTW : 4.89 % |
| TD.PR.K | FixedReset | 77,411 | RBC crossed 22,000 at 26.25; TD crossed 50,000 at the same price. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-07-31 Maturity Price : 25.00 Evaluated at bid price : 26.25 Bid-YTW : 2.48 % |
| BAM.PR.P | FixedReset | 59,831 | TD crossed 49,800 at 26.05. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-09-30 Maturity Price : 25.00 Evaluated at bid price : 26.01 Bid-YTW : 3.61 % |
| There were 52 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| SLF.PR.H | FixedReset | Quote: 25.10 – 25.63 Spot Rate : 0.5300 Average : 0.3170 YTW SCENARIO |
| MFC.PR.J | FixedReset | Quote: 25.07 – 25.68 Spot Rate : 0.6100 Average : 0.4006 YTW SCENARIO |
| PWF.PR.P | FixedReset | Quote: 24.95 – 25.43 Spot Rate : 0.4800 Average : 0.3402 YTW SCENARIO |
| GWO.PR.N | FixedReset | Quote: 23.76 – 24.13 Spot Rate : 0.3700 Average : 0.2369 YTW SCENARIO |
| RY.PR.C | Deemed-Retractible | Quote: 25.14 – 25.54 Spot Rate : 0.4000 Average : 0.2708 YTW SCENARIO |
| ENB.PR.H | FixedReset | Quote: 24.66 – 24.99 Spot Rate : 0.3300 Average : 0.2009 YTW SCENARIO |
[…] into the US money supply), which – according to some – were confirmed by the June 19 FOMC statement and particularly Bernanke’s press conference afterwards. The market bottomed […]