To my astonishment, it looks like there is an adult on the buy-side:
Oeyvind Schanke, head of asset strategies at Norway’s $860 billion sovereign wealth fund, has worked out how to dodge traders in the U.S. trying to profit on his orders by leaving no pattern for them to track.
Investors who want to pre-empt trades by the world’s biggest sovereign-wealth fund and act on that information to make a profit — a practice known as front running — won’t have much success, he said.
“We’ve done a lot to try and avoid leaving those patterns,” Schanke said in a Nov. 14 interview at the Oslo headquarters of the fund. “We’re trading less using algorithmic trading now than we did some years ago and are doing much more trading in large block sizes to avoid pattern-reading.”
Incredible. He had a problem (though why the media insists on calling it “front-running” is beyond me); he sat and thought about it; he tried something new; it’s working. This is probably the most amazing advancement in institutional money management since the invention of the client lunch. CFA Level 27. This guy should get the next three Nobel Prizes in Economics, at least. He’s awesome.
BIS has published a paper by Michael Brei and Leonardo Gambacorta titled The leverage ratio over the cycle:
This paper analyses how the Basel III leverage ratio (Tier 1 capital/exposure) behaves over the cycle. The analysis proposes a setup to test for the cyclical properties of bank capital ratios, taking into account structural shifts in banks’ behaviour during the global financial crisis and its aftermath. Using a large data set covering international banks headquartered in 14 advanced economies for the period 1995-2012, we find that the Basel III leverage ratio is significantly more countercyclical than the risk weighted regulatory capital ratio: it is a tighter constraint for banks in booms and a looser constraint in recessions.
To universal surprise, the G-20 decided to encourage growth:
Group of 20 leaders agreed to take measures that would boost their economies by a collective $2 trillion by 2018 as they battle patchy growth and the threat of a European recession.
Citing risks from financial markets and geopolitical tensions, the leaders said the global economy is being held back by lackluster demand, according to their communique following a two-day summit that ended yesterday in Brisbane. The group submitted almost 1,000 individual policy changes designed to lift growth and said they would hold each other to account to ensure they are implemented.
But what else could they do, given the recession in Japan?
Less than 24 hours after heads of state gathering in Brisbane, Australia, agreed to take measures that would boost their economies by a collective $2 trillion by 2018, the Cabinet Office delivered news in Tokyo that Japan’s gross domestic product unexpectedly shrank an annualized 1.6 percent in the three months through September, the second straight contraction.
Disappointment is becoming routine for the global economy, with the International Monetary Fund last month cutting its 2014 world-growth outlook for the sixth time since January 2013. Weaker expansion stands to add pressure on policy makers including European Central Bank President Mario Draghi who are already pushing the limits of monetary stimulus and governments that are reluctant to increase spending.
Will Canadian interest rates rise in the short term (which is to say, five years)? I think so; they’re ridiculously low right now, have been for five years and are distorting the housing market. But not by much. The strength isn’t there.
Deutsche Bank AG is getting out of the kitchen:
Deutsche Bank AG will stop trading most credit-default swaps tied to individual companies, exiting a business that new banking regulations have made costlier, according to a spokeswoman.
The lender will instead focus on transactions in corporate bonds, while maintaining trading in the more active market for credit swaps tied to benchmark indexes, Michele Allison, a spokeswoman for the Frankfurt-based bank, said today. The firm also will continue trading swaps tied to emerging-market borrowers and distressed companies, she said.
…
Deutsche Bank is exiting a part of the market that shrank to less than $11 trillion from $32 trillion before the financial crisis, data from the Bank for International Settlements show. Dealing in credit swaps, which have been blamed for exacerbating the 2008 financial crisis, has become more expensive for lenders like Deutsche Bank as regulators across the U.S. and Europe require banks to hold more capital to back trades, reducing the returns for shareholders.
…
Among measures that regulators have enacted since the crisis is requiring large swaths of credit swaps to be backed by clearinghouses, which are capitalized by banks and require traders to set aside collateral, or margin, to cover losses if they can’t make good on the transactions. Much of the market, where the privately negotiated trades have typically been done over phone calls and e-mails, is also being shifted to electronic systems.The regulatory crackdown pushed some of Wall Street’s most profitable credit derivatives and corporate-bond traders to less-regulated hedge funds. One trio of Deutsche Bank credit traders departed the bank’s New York office for hedge funds in 2011 and 2012 after making a combined $1 billion for the firm during the two preceding years, people with direct knowledge of the situation said in a 2012 Bloomberg News story.
Brookfield Investments, proud issuer of BRN.PR.A (which trades by appointment only and is not tracked by HIMIPref™) has been confirmed at Pfd-2(low) by DBRS:
The rating continues to be based on the strength of Brookfield Investments’ owner (Brookfield Asset Management Inc. or BAM: rated A (low), Stable trend by DBRS), as well as the Company’s relatively stable portfolio of real estate and asset management investments, with strong asset and dividend coverage. The rating remains limited by Brookfield Investments’ exposure to the volatility of overall capital markets, concentration of investments in the real estate sector, lack of investment restrictions and the relative illiquidity of unlisted investments.
Overall asset coverage (based on market values) for the Senior Preferred Shares increased to 17.49 times (x), for the six-month period ending June 30, 2014 (H1 2014), from 14.60x a year earlier. This was mainly due to an increase in investment values, particularly the Company’s investment in Brookfield Property Partners (BPY). That said, Brookfield Investments’ portfolio continues to have a high degree of exposure to the real estate sector. The Company also reduced its investment in Western Forest Products Inc. (Western) by disposing of 26 million shares in January 2014. As at Q2 2014, the Company had a 12.0% ownership interest in Western. As a result of the aforementioned portfolio changes, the Company’s exposure to real estate investments was 67.3% (on a market value basis as at Q2 2014). Specifically, BPY represents 55.7% of the Company’s investment portfolio on a market value basis. This should continue to support overall market values and provide stable dividends going forward. DBRS believes that asset coverage of 17.49x for the Senior Preferred Shares (based on market values in H1 2014) and dividend coverage of 12.45x are strong for the current rating category and provide a good level of downside protection. In terms of future investments, DBRS expects the Company will focus on stable, income-producing assets, such as preferred or common shares in real estate and power sectors.
It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts up 18bp, FixedResets off 1bp and DeemedRetractibles gaining 4bp. Volatility was average. Volume was low.
| 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 | 0.5117 % | 2,537.9 |
| FixedFloater | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.5117 % | 4,018.0 |
| Floater | 2.97 % | 3.07 % | 62,485 | 19.51 | 4 | 0.5117 % | 2,698.0 |
| OpRet | 4.02 % | -0.01 % | 96,908 | 0.08 | 1 | 0.0000 % | 2,748.7 |
| SplitShare | 4.25 % | 3.99 % | 53,139 | 3.75 | 5 | -0.0079 % | 3,186.3 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.0000 % | 2,513.4 |
| Perpetual-Premium | 5.44 % | -8.19 % | 64,295 | 0.08 | 19 | 0.0986 % | 2,485.6 |
| Perpetual-Discount | 5.14 % | 5.04 % | 101,191 | 15.32 | 16 | 0.1751 % | 2,665.2 |
| FixedReset | 4.18 % | 3.58 % | 172,666 | 4.55 | 74 | -0.0076 % | 2,585.0 |
| Deemed-Retractible | 4.96 % | -0.53 % | 95,212 | 0.12 | 40 | 0.0405 % | 2,604.1 |
| FloatingReset | 2.56 % | -2.84 % | 61,593 | 0.08 | 6 | 0.0326 % | 2,554.3 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| TRP.PR.C | FixedReset | -1.80 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-11-17 Maturity Price : 21.50 Evaluated at bid price : 21.85 Bid-YTW : 3.59 % |
| FTS.PR.K | FixedReset | -1.34 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-11-17 Maturity Price : 23.23 Evaluated at bid price : 25.04 Bid-YTW : 3.53 % |
| TRP.PR.B | FixedReset | 1.12 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-11-17 Maturity Price : 19.00 Evaluated at bid price : 19.00 Bid-YTW : 3.79 % |
| SLF.PR.G | FixedReset | 1.22 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.60 Bid-YTW : 4.80 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| NA.PR.S | FixedReset | 191,369 | Nesbitt crossed blocks of 150,000 shares, 12,900 and 25,000, all at 25.71. YTW SCENARIO Maturity Type : Call Maturity Date : 2019-05-15 Maturity Price : 25.00 Evaluated at bid price : 25.66 Bid-YTW : 3.48 % |
| POW.PR.G | Perpetual-Premium | 90,795 | Scotia crossed blocks of 15,100 shares, 25,000 and 50,000, all at 26.75. YTW SCENARIO Maturity Type : Call Maturity Date : 2017-04-15 Maturity Price : 26.00 Evaluated at bid price : 26.75 Bid-YTW : 4.35 % |
| TRP.PR.B | FixedReset | 74,748 | National bought blocks of 11,000 and 10,000 from RBC, both at 19.00, and another 10,000 from TD at the same price. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-11-17 Maturity Price : 19.00 Evaluated at bid price : 19.00 Bid-YTW : 3.79 % |
| ENB.PF.C | FixedReset | 64,825 | RBC crossed 50,000 at 25.13. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-11-17 Maturity Price : 23.19 Evaluated at bid price : 25.14 Bid-YTW : 4.09 % |
| BMO.PR.Q | FixedReset | 59,216 | TD crossed 25,000 at 24.64 and bought 10,000 from Nesbitt at the same price. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.70 Bid-YTW : 3.17 % |
| HSB.PR.D | Deemed-Retractible | 59,125 | Desjardins crossed 56,800 at 25.20. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-12-31 Maturity Price : 25.00 Evaluated at bid price : 25.22 Bid-YTW : 3.18 % |
| There were 23 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| POW.PR.A | Perpetual-Premium | Quote: 25.60 – 25.96 Spot Rate : 0.3600 Average : 0.2372 YTW SCENARIO |
| MFC.PR.L | FixedReset | Quote: 25.10 – 25.41 Spot Rate : 0.3100 Average : 0.1976 YTW SCENARIO |
| MFC.PR.G | FixedReset | Quote: 26.15 – 26.49 Spot Rate : 0.3400 Average : 0.2454 YTW SCENARIO |
| MFC.PR.I | FixedReset | Quote: 26.18 – 26.55 Spot Rate : 0.3700 Average : 0.2772 YTW SCENARIO |
| PWF.PR.R | Perpetual-Premium | Quote: 26.31 – 26.58 Spot Rate : 0.2700 Average : 0.1844 YTW SCENARIO |
| BAM.PF.E | FixedReset | Quote: 25.10 – 25.35 Spot Rate : 0.2500 Average : 0.1813 YTW SCENARIO |