October 20, 2008

Bloomberg has some interesting colour on the US TIPS market:

Treasury Inflation-Protected Securities fell 8 percent since June as investors shunned all but the most easily traded debt amid the seizure in credit markets. TIPS were the only part of the U.S. government bond market to lose money in that time as Treasuries of all maturities gained 2.12 percent, according to Merrill Lynch & Co. indexes.

BlackRock Inc., Brown Brothers Harriman & Co., DWS Investment GmbH and New Century Advisors are buying the securities because inflation will likely increase at a faster pace over the next decade than the 1 percent annual rate TIPS yields suggest. Consumer prices, unchanged in September, may increase 4.5 percent this year and 2.65 percent in 2009, according to the median estimate of 69 forecasters surveyed by Bloomberg.

The Cleveland Fed’s liquidity adjusted inflation expectations estimator shows a ten year expectation of 1.48% as of 10/16, vs. the unadjusted figure of 0.95%.

A very good day for markets in general, credit markets particularly and especially prefs! PerpetualDiscounts now yield 6.77% dividend, equivalent to 9.48% interest at the standard factor of 1.4x, while long corporates are now at 7.25% for a pre-tax interest-equivalent spread of 223bp.

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.
The Fixed-Reset index was added effective 2008-9-5 at that day’s closing value of 1,119.4 for the Fixed-Floater index.
Index Mean Current Yield (at bid) Mean YTW Mean Average Trading Value Mean Mod Dur (YTW) Issues Day’s Perf. Index Value
Ratchet N/A N/A N/A N/A 0 N/A N/A
Fixed-Floater 5.37% 5.61% 70,920 14.75 6 +0.4190% 961.4
Floater 6.63% 6.71% 47,107 12.91 2 -3.6728% 548.3
Op. Retract 5.35% 6.28% 125,807 4.05 14 +0.9336% 988.3
Split-Share 6.19% 10.15% 59,011 4.02 12 +1.7515% 943.7
Interest Bearing 7.48% 11.85% 53,381 3.44 3 +2.4139% 933.6
Perpetual-Premium 6.76% 6.84% 48,326 12.71 1 -2.1601% 917.5
Perpetual-Discount 6.70% 6.77% 174,867 12.86 70 +0.9456% 807.0
Fixed-Reset 5.22% 5.04% 900,641 15.31 10 -0.0661% 1,099.3
Major Price Changes
Issue Index Change Notes
BAM.PR.B Floater -6.7146%  
BCE.PR.G FixFloat -2.1951%  
CL.PR.B PerpetualPremium (for now!) -2.1601% Now with a pre-tax bid-YTW of 6.84% based on a bid of 23.10 and a limitMaturity. Closing quote 23.10-60, 5×4. All trades today at 23.60.
CM.PR.K FixedReset -2.0833%  
TD.PR.Q PerpetualDiscount +2.0418% Now with a pre-tax bid-YTW of 6.40% based on a bid of 21.99 and a limitMaturity. Closing Quote 21.53-99, 3×7. Day’s range of 21.53-25.
GWO.PR.H PerpetualDiscount +2.0588% Now with a pre-tax bid-YTW of 7.08% based on a bid of 17.35 and a limitMaturity. Closing Quote 17.35-44, 10X5. Day’s range of 16.75-25.
BNS.PR.O PerpetualDiscount +2.0824% Now with a pre-tax bid-YTW of 6.38% based on a bid of 22.06 and a limitMaturity. Closing Quote 22.06-75, 5×1. Day’s range of 21.52-23.15.
SLF.PR.A PerpetualDiscount +2.0987% Now with a pre-tax bid-YTW of 6.68% based on a bid of 18.00 and a limitMaturity. Closing Quote 18.00-61, 10×16. Day’s range 17.75-01.
HSB.PR.C PerpetualDiscount +2.1322% Now with a pre-tax bid-YTW of 6.74% based on a bid of 19.16 and a limitMaturity. Closing Quote 19.16-60, 3×2. Day’s range 19.01-30.
PWF.PR.E PerpetualDiscount +2.2578% Now with a pre-tax bid-YTW of 6.35% based on a bid of 21.74 and a limitMaturity. Closing Quote 21.74-00, 1×2. Day’s range of 21.50-75.
CM.PR.D PerpetualDiscount +2.2786% Now with a pre-tax bid-YTW of 7.33% based on a bid of 19.75 and a limitMaturity. Closing Quote 19.75-19, 2×1. Day’s range 19.50-22.
SLF.PR.B PerpetualDiscount +2.2969% Now with a pre-tax bid-YTW of 6.65% based on a bid of 18.26 and a limitMaturity. Closing Quote 18.26-50, 2×3. Day’s range 18.16-50.
BAM.PR.H OpRet +2.4286% Now with a pre-tax bid-YTW of 10.92% based on a bid of 21.51 and softMaturity 2012-3-30 at 25.00. Compare with BAM.PR.I (10.65% to 2013-12-30), BAM.PR.J (10.63% to 2018-3-30) and BAM.PR.O (11.13% to 2013-6-30). Closing quote 21.51-98, 5×3. Day’s range 20.50-21.50.
POW.PR.D PerpetualDiscount +2.4417% Now with a pre-tax bid-YTW of 6.84% based on a bid of 18.46 and a limitMaturity. Closing Quote 18.46-60, 10×1. Day’s range 18.42-85.
PWF.PR.F PerpetualDiscount +2.5038% Now with a pre-tax bid-YTW of 6.58% based on a bid of 20.06 and a limitMaturity. Closing Quote 20.06-79, 3×10. Day’s range 20.00-21.25.
BNS.PR.N PerpetualDiscount +2.5629% Now with a pre-tax bid-YTW of 6.22% based on a bid of 21.21 and a limitMaturity. Closing Quote 21.21-48, 4×3. Day’s range 20.95-50.
TD.PR.R PerpetualDiscount +2.7166% Now with a pre-tax bid-YTW of 6.42% based on a bid of 21.93 and a limitMaturity. Closing Quote 21.93-49, 3×10. Day’s range 21.86-50.
BNA.PR.A SplitShare +3.0800% Asset coverage of just under 2.8:1 as of September 30 according to the company. Coverage now of 2.4+:1 based on BAM.A at 25.44 and 2.4 BAM.A held per preferred. Now with a pre-tax bid-YTW of 17.55% based on a bid of 20.75 and a hardMaturity 2010-9-30 at 25.00. Compare with BNA.PR.B (10.43% to 2016-3-25) and BNA.PR.C (12.11% to 2019-1-10). Closing quote 20.75-22.94, 2×1. No trades today.
TCA.PR.Y PerpetualDiscount +3.1746% Now with a pre-tax bid-YTW of 6.15% based on a bid of 45.50 and a limitMaturity. Closing Quote 45.50-48, 3×5. Day’s range 45.75-50.
BNA.PR.B SplitShare +3.4541% See BNA.PR.A, above. Closing quote 18.27-19.44, 6×5. No trades.
POW.PR.B PerpetualDiscount +3.5380% Now with a pre-tax bid-YTW of 6.78% based on a bid of 19.90 and a limitMaturity. Closing Quote 19.90-99, 8×3. Day’s range 19.94-10.
FTN.PR.A SplitShare +3.6585% Asset coverage of 2.2+:1 as of September 30 according to the company. Now with a pre-tax bid-YTW of 8.19% based on a bid of 8.50 and a hardMaturity 2015-12-1 at 10.00. Closing quote of 8.50-96, 10×3. Day’s range 8.30-50.
BAM.PR.O OpRet +4.5769% See BAM.PR.H, above. Closing quote 19.65-00, 1×16. Day’s range 18.95-20.00.
DFN.PR.A SplitShare +4.7836% Asset coverage of 1.9+:1 as of October 16, according to some guy’s estimate. Now with a pre-tax bid-YTW of 6.98% based on a bid of 9.20 and a hardMaturity 2014-12-1 at 10.00. Closing quote 9.20-49, 5×5. Day’s range 8.92-65.
BAM.PR.J OpRet +4.7904% See BAM.PR.H, above. Closing quote 17.50-74, 5×10. Day’s range 17.00-75.
FIG.PR.A InterestBearing +6.1224% Asset coverage of just under 1.4:1 as of October 15, according to Faircourt. Now with a pre-tax bid-YTW of 11.48% based on a bid of 7.80 and a hardMaturity 2014-12-31 at 10.00. Closing quote 7.80-99, 2×1. Day’s range of 7.50-06.
GWO.PR.I PerpetualDiscount +6.5970% Now with a pre-tax bid-YTW of 6.98% based on a bid of 16.32 and a limitMaturity. Closing Quote 16.32-59, 4×5. Day’s range 15.89-59.
BNA.PR.C SplitShare +9.3604% See BNA.PR.B, above. Closing quote 14.02-96, 8×5. Day’s range of 13.22-14.96.
Volume Highlights
Issue Index Volume Notes
BNS.PR.M PerpetualDiscount 335,600 Nesbitt crossed 199,200 at 17.60, then another 120,000 at the same price. Now with a pre-tax bid-YTW of 6.41% based on a bid of 17.65 and a limitMaturity.
DC.PR.A Scraps (would be OpRet but there are credit concerns) 177,400 CIBC crossed 166,900 at 13.75. Now with a pre-tax bid-YTW of 15.62% based on a bid of 13.52 and a softMaturity 2016-6-29 at 25.00.
BNS.PR.L PerpetualDiscount 154,700 Desjardins crossed 55,000 at 17.60, then Nesbitt crossed 80,500 at the same price. Now with a pre-tax bid-YTW of 6.43% based on a bid of 17.60 and a limitMaturity.
BMO.PR.J PerpetualDiscount 151,400 Nesbitt crossed 123,400 at 16.60, but the trade was cancelled. They then crossed 75,000 at 16.60, then 48,400 at the same price. Now with a pre-tax bid-YTW of 6.88% based on a bid of 16.69 and a limitMaturity.
CM.PR.H PerpetualDiscount 109,045 TD crossed 98,000 at 16.35. Now with a pre-tax bid-YTW of 7.40% based on a bid of 16.33 and a limitMaturity.
L.PR.A Scraps (would be OpRet but there are credit concerns) 104,650 RBC crossed 24,900 at 22.00, then CIBC crossed 64,900 at the same price. Now with a pre-tax bid-YTW of 8.33% based on a bid of 22.00 and a softMaturity 2015-7-30 at 25.00.
PIC.PR.A Scraps (would be SplitShare but there are credit concerns) 173,050 CIBC crossed 158,900 at 13.00. Now with a pre-tax bid-YTW of 13.17% based on a bid of 13.07 and a hardMaturity 2010-11-1 at 15.00.

There were thirty-seven other index-included $25-pv-equivalent issues trading over 10,000 shares today.

4 Responses to “October 20, 2008”

  1. pugwash says:

    Newb question:

    At current prices, why doesn’t BAM (for example) buy some of its prefs back.

  2. jiHymas says:

    Don’t be so down on yourself, it’s a perfectly good question.

    There have been scattered reports of LBO Debt Buybacks:

    Kohlberg Kravis Roberts & Co. and PAI Partners bought loans used for their takeovers after prices tumbled in February. The purchases helped cut the global backlog of leveraged buyout debt to $91 billion from $230 billion nine months ago, according to Bank of America Corp.

    … and more recently:

    Apollo, TPG and Blackstone are reported to be close to a deal to buy USD 12.5 billion in “distressed” buyout debt, at the bargain price of what the New York Times has identified as “in the mid-80 cents on the dollar.” This is lower than the USD 87 cents identified as the average trading price by a special Credit Suisse index, but more than the 70-80 cents that many other buyout loans are currently trading at.

    With respect to BAM particularly … the glib, meaningless answer is that they expect to be able to invest those funds as vultures, earning more than they could save from a buy-back of their own debt. Brookfield has a very expansionist agenda and could well just be waiting for a major bankruptcy, for instance, to put good assets that fit with their portfolio on the market for a song.

    Even if that is not the case, there is always the question of liquidity. They have about $3-billion in liquidity now and they may be hoarding it … why buy back 5-year debt when they have the same amount of debt maturing next year that might be a nightmare to refinance? Nobody knows for sure how long this very tight environment is going to last … so everybody’s sitting on whatever cash they have …

  3. pugwash says:

    Thanks – helpful answer:

    Which breeds a follow on question – how about the buy back situation with split share prefs (particularly short dated ones).

    Doesn’t it make sense in today’s market for the issuer to buy back the pref at way below the $10 they will have to pay in a few years time.

    Wouldn’t this also improve the asset coverage ratio.

    Or is this what the difficult to understand retraction feature, you mentioned in September for eg WFS is all about.

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