Pussycat, in a desperate attempt to sound tough, is putting What-Debt? on “probation”:
[Pussycat] said his party is prepared to “swallow hard” and support the Conservative government, provided they agree to table regular updates outlining how they are living up to their commitments outlined in the federal budget.
We have now officially forgotten the lesson of hitting the wall in 1994 – I confidently predict twenty years of deficits until we hit the wall again.
Rubin has spoken out against fair-value accounting:
“I spent my whole life at Goldman Sachs believing in mark- to-market accounting, and having said that, if you look at the experience from the last two years, I think mark-to-market accounting has led to terrible vicious cycles in asset prices,” Rubin, the former U.S. Treasury secretary, said during a discussion at the 92nd St. YMCA late yesterday.
Companies including Citigroup and American International Group Inc. say mark-to-market, also known as fair-value accounting, doesn’t work when few buyers are willing to trade assets like subprime mortgages. Proponents such as the U.S. Financial Accounting Standards Board say the rule adds to transparency and gives investors information about companies.
…
Under reserve accounting, assets like loans are carried at cost, offset by reserves for potential losses.
I have stated many times that the regulatory regime should differentiate between banks and investment firms. Fair value accounting is appropriate for investment firms, at which the default assumption is that they hold assets for a short period, then sell them. Reserve accounting is often (though not always) more appropriate for banks, at which the default assumption is that they hold assets until maturity.
The FOMC released its monetary policy statement today – no real surprises.
The BoC has released an analysis of bond auction formats by Olivier Armantier and Nourredine Lafhel, examining the methods by which bonds can be auctioned. Three systems are considered:
- discriminatory auctions: the highest bids are filled at the price bid until supply is exhausted
- at uniform-price auctions, bidders pay the stop-out price for all units they requested at prices exceeding the stop-out price.
- At Spanish auctions, bidders pay the average price of the bids for all their bids above the average and their bid price if it below the accepted average
it appears that the ranking of the two auction formats may only be established on a case-by-case basis.3 As demonstrated by A&S (2005), the presence of asymmetries across participants is an important factor in ranking auction formats in terms of the revenues they generate. Indeed, A&S show that risk averse and/or less-informed bidders may become relatively more aggressive at uniform-price auctions, since they do not have to pay their bids.
…
Table 7 also indicates that, had the Canadian government conducted the 100 auctions in our sample under the Spanish format instead of the discriminatory format, it would have significantly increased its revenues by an average of 2:34%; or close to 52:71 million dollars, per auction. Furthermore, we can see in Table 8 that, given the assumptions underlying the model, Canadian government revenues would have been higher in roughly 62% of the auctions if it had conducted them under the Spanish format. Observe also that the Spanish format dominates in an additional dimension. Indeed, we can see in Table 7 that the standard deviation of the revenues generated across the 100 auctions is the smallest under the Spanish format. In other words, the stream of revenues generated by the Canadian government from one auction to the next would have been more stable than under the current pricing rule. Finally, Table 7 indicates that the additional revenues the Canadian government would generate by switching from the discriminatory to the Spanish format, would be almost equally spread across maturities. Indeed, we are unable to detect any clear pattern in the additional revenues generated at auctions for 30, 10, 5 or 2 years bonds.
…
In other words, as found by Armantier and Sbaï (2006), the Spanish format appears to provide an appropriate compromise between asking bidders to pay up to their bids, and promoting aggressive behaviour by o¤ering participants the guarantee that they will not have to pay more than the average winning bid.
SplitShares did well today, presumably on hopes that the bad-bank bailout plan will lead to a world of smiling bankers and bonuses for everybody. Well … I wouldn’t want to say it’s a completely insane hope. I’ll just say that every effort yet to persuade banks to sell their so-called toxic assets in bulk and at a politically acceptable price has failed. I think that Caballero’s plan has a better chance of success.
Fixed-Resets were down again today while PerpetualDiscounts were up, in a continuing fine reversal of their standard form in 2008. Volume continued high. The new RY Fixed-Reset 6.25%+450 will commence trading tomorrow with the symbol RY.PR.R.
| 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 | 6.90 % | 7.68 % | 23,690 | 13.50 | 2 | 0.5777 % | 849.4 |
| FixedFloater | 7.47 % | 6.97 % | 162,003 | 13.83 | 8 | 0.8968 % | 1,385.2 |
| Floater | 5.36 % | 4.51 % | 33,519 | 16.39 | 4 | 0.1534 % | 980.5 |
| OpRet | 5.31 % | 4.86 % | 160,988 | 4.04 | 15 | 0.0167 % | 2,022.8 |
| SplitShare | 6.19 % | 10.12 % | 76,556 | 4.10 | 15 | 1.5794 % | 1,799.9 |
| Interest-Bearing | 7.09 % | 7.93 % | 36,657 | 0.88 | 2 | -0.9748 % | 1,994.3 |
| Perpetual-Premium | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.3495 % | 1,558.3 |
| Perpetual-Discount | 6.88 % | 6.93 % | 228,524 | 12.67 | 71 | 0.3495 % | 1,435.2 |
| FixedReset | 6.09 % | 5.38 % | 743,735 | 14.37 | 22 | -0.1856 % | 1,779.2 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| BNS.PR.P | FixedReset | -2.87 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-01-28 Maturity Price : 21.93 Evaluated at bid price : 22.00 Bid-YTW : 4.72 % |
| FIG.PR.A | Interest-Bearing | -2.63 % | Asset coverage of 1.1-:1 as of January 19, based on Capital Units NAV of 1.55 and 0.53 Capital Units per preferred. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2014-12-31 Maturity Price : 10.00 Evaluated at bid price : 7.41 Bid-YTW : 12.85 % |
| TD.PR.C | FixedReset | -2.34 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-01-28 Maturity Price : 22.96 Evaluated at bid price : 23.00 Bid-YTW : 5.30 % |
| TD.PR.A | FixedReset | -2.00 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-01-28 Maturity Price : 22.01 Evaluated at bid price : 22.05 Bid-YTW : 4.68 % |
| ELF.PR.G | Perpetual-Discount | -1.79 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-01-28 Maturity Price : 14.25 Evaluated at bid price : 14.25 Bid-YTW : 8.45 % |
| BAM.PR.J | OpRet | -1.51 % | YTW SCENARIO Maturity Type : Soft Maturity Maturity Date : 2018-03-30 Maturity Price : 25.00 Evaluated at bid price : 17.63 Bid-YTW : 10.66 % |
| TD.PR.Y | FixedReset | -1.38 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-01-28 Maturity Price : 21.51 Evaluated at bid price : 21.51 Bid-YTW : 4.56 % |
| RY.PR.I | FixedReset | -1.30 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-01-28 Maturity Price : 22.02 Evaluated at bid price : 22.06 Bid-YTW : 4.79 % |
| CU.PR.B | Perpetual-Discount | -1.23 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-01-28 Maturity Price : 22.36 Evaluated at bid price : 22.54 Bid-YTW : 6.79 % |
| BCE.PR.I | FixedFloater | -1.00 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-01-28 Maturity Price : 25.00 Evaluated at bid price : 15.84 Bid-YTW : 6.97 % |
| CM.PR.H | Perpetual-Discount | 1.02 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-01-28 Maturity Price : 16.79 Evaluated at bid price : 16.79 Bid-YTW : 7.21 % |
| TD.PR.P | Perpetual-Discount | 1.06 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-01-28 Maturity Price : 20.00 Evaluated at bid price : 20.00 Bid-YTW : 6.61 % |
| TCA.PR.X | Perpetual-Discount | 1.10 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-01-28 Maturity Price : 43.98 Evaluated at bid price : 45.01 Bid-YTW : 6.24 % |
| TCA.PR.Y | Perpetual-Discount | 1.11 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-01-28 Maturity Price : 44.25 Evaluated at bid price : 45.50 Bid-YTW : 6.17 % |
| PWF.PR.F | Perpetual-Discount | 1.13 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-01-28 Maturity Price : 18.86 Evaluated at bid price : 18.86 Bid-YTW : 7.02 % |
| CM.PR.K | FixedReset | 1.13 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-01-28 Maturity Price : 21.82 Evaluated at bid price : 22.30 Bid-YTW : 4.95 % |
| SBC.PR.A | SplitShare | 1.14 % | Asset coverage of 1.3-:1 as of January 22, according to Brompton Group. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2012-11-30 Maturity Price : 10.00 Evaluated at bid price : 8.00 Bid-YTW : 12.06 % |
| W.PR.J | Perpetual-Discount | 1.15 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-01-28 Maturity Price : 19.32 Evaluated at bid price : 19.32 Bid-YTW : 7.34 % |
| POW.PR.B | Perpetual-Discount | 1.21 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-01-28 Maturity Price : 19.22 Evaluated at bid price : 19.22 Bid-YTW : 7.04 % |
| BMO.PR.J | Perpetual-Discount | 1.25 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-01-28 Maturity Price : 17.01 Evaluated at bid price : 17.01 Bid-YTW : 6.76 % |
| PWF.PR.H | Perpetual-Discount | 1.46 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-01-28 Maturity Price : 20.80 Evaluated at bid price : 20.80 Bid-YTW : 6.97 % |
| DFN.PR.A | SplitShare | 1.60 % | Asset coverage of 1.7-:1 as of January 15 according to the company. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2014-12-01 Maturity Price : 10.00 Evaluated at bid price : 9.10 Bid-YTW : 7.21 % |
| POW.PR.C | Perpetual-Discount | 1.61 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-01-28 Maturity Price : 21.41 Evaluated at bid price : 21.41 Bid-YTW : 6.85 % |
| LFE.PR.A | SplitShare | 1.64 % | Asset coverage of 1.5-:1 as of January 15 according to the company. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2012-12-01 Maturity Price : 10.00 Evaluated at bid price : 9.50 Bid-YTW : 6.77 % |
| DF.PR.A | SplitShare | 1.64 % | Asset coverage of 1.4-:1 as of January 15 according to the company. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2014-12-01 Maturity Price : 10.00 Evaluated at bid price : 8.87 Bid-YTW : 7.74 % |
| BCE.PR.R | FixedFloater | 1.67 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-01-28 Maturity Price : 25.00 Evaluated at bid price : 15.78 Bid-YTW : 6.88 % |
| BMO.PR.H | Perpetual-Discount | 1.87 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-01-28 Maturity Price : 20.75 Evaluated at bid price : 20.75 Bid-YTW : 6.52 % |
| BNA.PR.A | SplitShare | 1.88 % | Asset coverage of 1.8+:1 as of December 31 according to the company. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2010-09-30 Maturity Price : 25.00 Evaluated at bid price : 23.80 Bid-YTW : 10.12 % |
| FBS.PR.B | SplitShare | 2.01 % | Asset coverage of 1.0-:1 as of January 22 according to TD Securities. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2011-12-15 Maturity Price : 10.00 Evaluated at bid price : 7.61 Bid-YTW : 15.75 % |
| WFS.PR.A | SplitShare | 2.11 % | Asset coverage of 1.1+:1 as of January 22 according to Mulvihill. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2011-06-30 Maturity Price : 10.00 Evaluated at bid price : 8.70 Bid-YTW : 11.87 % |
| PWF.PR.G | Perpetual-Discount | 2.14 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-01-28 Maturity Price : 21.51 Evaluated at bid price : 21.51 Bid-YTW : 6.91 % |
| POW.PR.A | Perpetual-Discount | 2.50 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-01-28 Maturity Price : 20.89 Evaluated at bid price : 20.89 Bid-YTW : 6.78 % |
| SBN.PR.A | SplitShare | 2.69 % | Asset coverage of 1.6-:1 as of January 22 according to Mulvihill. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2014-12-01 Maturity Price : 10.00 Evaluated at bid price : 9.15 Bid-YTW : 7.12 % |
| BNA.PR.C | SplitShare | 2.75 % | Asset coverage of 1.8+:1 as of December 31 according to the company. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2019-01-10 Maturity Price : 25.00 Evaluated at bid price : 11.57 Bid-YTW : 15.20 % |
| NA.PR.N | FixedReset | 3.02 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-01-28 Maturity Price : 22.15 Evaluated at bid price : 22.20 Bid-YTW : 4.78 % |
| PPL.PR.A | SplitShare | 3.13 % | Asset coverage of 1.4+:1 as of January 15 according to the company. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2012-12-01 Maturity Price : 10.00 Evaluated at bid price : 8.91 Bid-YTW : 8.35 % |
| FFN.PR.A | SplitShare | 3.48 % | Asset coverage of 1.1+:1 as of January 15 according to the company. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2014-12-01 Maturity Price : 10.00 Evaluated at bid price : 7.51 Bid-YTW : 11.27 % |
| BCE.PR.G | FixedFloater | 8.57 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-01-28 Maturity Price : 25.00 Evaluated at bid price : 15.21 Bid-YTW : 7.18 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| LFE.PR.A | SplitShare | 153,337 | Asset coverage of 1.5-:1 as of January 15 according to the company. Desjardins crossed 150,000 at 9.50. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2012-12-01 Maturity Price : 10.00 Evaluated at bid price : 9.50 Bid-YTW : 6.77 % |
| RY.PR.P | FixedReset | 121,757 | Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-01-28 Maturity Price : 25.00 Evaluated at bid price : 25.05 Bid-YTW : 6.13 % |
| MFC.PR.A | OpRet | 108,010 | Desjardins crossed two blocks of 50,000 each, both at 24.72. YTW SCENARIO Maturity Type : Soft Maturity Maturity Date : 2015-12-18 Maturity Price : 25.00 Evaluated at bid price : 24.48 Bid-YTW : 4.56 % |
| SLF.PR.B | Perpetual-Discount | 91,650 | Nesbitt crossed 75,000 at 16.78. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-01-28 Maturity Price : 16.64 Evaluated at bid price : 16.64 Bid-YTW : 7.32 % |
| SLF.PR.A | Perpetual-Discount | 83,368 | Nesbitt crossed 75,000 at 16.60. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-01-28 Maturity Price : 16.63 Evaluated at bid price : 16.63 Bid-YTW : 7.25 % |
| TD.PR.M | OpRet | 77,700 | Scotia crossed 74,000 at 25.79. YTW SCENARIO Maturity Type : Soft Maturity Maturity Date : 2013-10-30 Maturity Price : 25.00 Evaluated at bid price : 25.86 Bid-YTW : 3.92 % |
| There were 46 other index-included issues trading in excess of 10,000 shares. | |||
How about that Weston Pref C/D? These two issues have the same dividend and ex-date, but trade more than $1 apart right now…with reasonable spreads.
The market may seem dull, but there are several $1.50 arbitrage opportunities in discount prefs out there: BMO, GWO pairs for example.
One can sort of rationalize market inefficiencies during a time of rapid market swings, but really, this is verging on the ridiculous.
It’s just craziness … I keep thinking I should update my post on Sloppy, sloppy markets, but don’t want to sound too much like a broken record …
Sooo, enlighten the unenlightenable: Are you for or against – mark to market? Keeping in mind that if I buy something for $1.00 (such as a perpetual discount) and after holding it for awhile, the market only wants to give me $0.75 for it, that’s all it’s (apparently) worth or should I hold out (possibly for a long long time) for what I feel it’s worth?
Are you for or against – mark to market?
That’s a bit like asking me whether I’m for or against crossing the street, isn’t it? It depends on what time, what street and why cross, doesn’t it?
You will recall that my comments on reserve accounting for banks were premised by the idea that the assets would be held until maturity. In your example of a perpetual discount, there’s no reason to believe it will mature.
Ok, what, to your mind, is fair? A piece of property abandoned, unlived in for years, windows broken, fence down, grass gone to seed and totally overgrown, initially valued at $300,000 and still valued at same or, valued at what it would fetch today in the shape it’s in today aka “mark to market”?