PrefBlog

OSFI has released a statement on federally regulated pension plan solvency:

The latest results show that the average estimated solvency ratio of federally regulated defined benefit private pension plans at June 30, 2009 was 0.88, meaning the total value of assets of all federal plans was 12 per cent lower than liabilities, calculated on a solvency basis. This compares to an estimated solvency ratio of 0.85 in December 2008.
…
The private pension plans subject to OSFI regulation currently represent seven per cent of all private pension plans in Canada, accounting for approximately 12 per cent of private pension assets.

Prior Fed policies are under continued attack:

A month after warning that property prices are rising “probably excessively,” Norges Bank Governor Svein Gjedrem is set to increase interest rates on Oct. 28. Reserve Bank of Australia Governor Glenn Stevens cited costlier real estate as a reason for raising rates three weeks ago.

At the Federal Reserve, officials under Chairman Ben S. Bernanke are reviewing whether recent gains in asset prices and narrowing credit spreads are justified as they try to ensure near-zero borrowing costs don’t generate future market turmoil.

The approach may herald what New York-based Morgan Stanley calls a “new era” in which central banks pay more attention to asset prices when setting monetary policy and devising regulation, broadening their focus from inflation.
…
Former Fed Chairman Alan Greenspan advocated a hands-off approach to asset prices during the U.S. expansion that lasted six years until December 2007. He said it was easier to clean up the mess of a bust than to spot bubbles and that monetary policy was too blunt to deflate them.

“There is no evidence that it works other than in computer models,” he said in a January 2008 interview about the idea that central banks should raise rates to pop asset bubbles. He noted that the stock market merely leveled off when the Fed doubled rates to 6 percent in 1994-95 and then resumed its climb.

All I can suggest is: as long as there are policies and policy makers, there will be policy errors. The new paradigm will not eliminate errors; it will merely change their nature.

Springfield Massachussets saved a few bucks on outrageous portfolio management fees:

Salvatore Calvanese, the treasurer of Springfield, Massachusetts, for four years, had a ready defense for why he risked $14 million of taxpayer money on collateralized-debt obligations laden with subprime mortgages in 2007.

He didn’t know what he was buying, he says, and trusted the financial professionals who sold them and told him they were safe.

With a jealous eye on the $369-million held under CBO, BMO has introduced a short term bond ETF:

The BMO Short Corporate Bond Index ETF seeks to replicate, to the extent possible, the performance of a short term corporate bond index, net of expenses. Currently, the BMO Short Corporate Bond Index ETF seeks to replicate the performance of the DEX Short Term Corporate Bond Index. The Manager may, in its discretion and without unitholder approval, change the DEX Short Term Corporate Bond Index to another widely recognized short term corporate bond index in order to provide investors with exposure to a short term corporate bond index. If the Manager changes the DEX Short Term Corporate Bond Index, or any index replacing such Index, the Manager will issue a press release identifying the new index. The BMO Short Corporate Bond Index ETF invests in a variety of debt securities primarily with a term to maturity between one and five years. Securities held in the Index are generally corporate bonds issued domestically in Canada in Canadian dollars, with an investment grade rating. As an alternative to or in conjunction with investing in and holding the Constituent Securities, BMO Short Corporate Bond Index ETF may invest in or use exchange traded funds, mutual funds or institutional pooled funds and derivative instruments to obtain exposure to the performance of the DEX Short Term Corporate Bond Index.

The MER is 30bp – and they’re looking to track the index net of fees. There are a number of ways in which this could be attempted:

• Taking views on the markets
• Trading the hell out of it
• heavily overweighting teeny-tiny issues and/or bad credits and/or non-bonds

I suspect they’ll try to juice the yields by holding non-bonds, such as sub-debt (well … OK. These are in fact bonds, they’re just not short-term bonds) and Tier 1 issues (not bonds by any stretch of the imagination) – but we will see.

Nine times out of ten – no, that’s too gloomy, call it ninety-nine times out of one-hundred – the increased risk won’t make any difference. That last time however? Just wait for the whining. ‘How was I supposed to know the terms? I’m only the portfolio manager! And … gloryosky! They’re in the index!’

The Canadian preferred share market managed to eke out small gains today, with PerpetualDiscounts up 3bp and FixedResets gaining 10bp. Volume was solid, dominated as usual by FixedResets.

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	0.6061 %	1,479.0
FixedFloater	6.63 %	4.68 %	45,431	17.96	1	-5.4179 %	2,351.0
Floater	2.64 %	3.07 %	107,382	19.55	3	0.6061 %	1,847.7
OpRet	4.88 %	-7.81 %	112,547	0.09	15	-0.0742 %	2,289.3
SplitShare	6.41 %	6.45 %	488,807	3.94	2	0.2658 %	2,064.4
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	-0.0742 %	2,093.4
Perpetual-Premium	5.91 %	5.94 %	140,735	13.89	11	0.2024 %	1,852.7
Perpetual-Discount	5.98 %	6.05 %	215,033	13.83	63	0.0335 %	1,735.2
FixedReset	5.53 %	4.24 %	454,817	4.01	41	0.0966 %	2,106.3

Performance Highlights
Issue	Index	Change	Notes
BAM.PR.G	FixedFloater	-5.42 %	Quite real enough, as the issue traded 4,600 shares in a range of 16.43-40 before closing at 16.41-73, 11×3, with a chunk of that volume in the 16.50 area at lunchtime, with no afternoon trading. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-10-26 Maturity Price : 25.00 Evaluated at bid price : 16.41 Bid-YTW : 4.68 %
ELF.PR.F	Perpetual-Discount	-1.40 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-10-26 Maturity Price : 19.03 Evaluated at bid price : 19.03 Bid-YTW : 7.04 %
MFC.PR.B	Perpetual-Discount	-1.14 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-10-26 Maturity Price : 19.08 Evaluated at bid price : 19.08 Bid-YTW : 6.19 %
BAM.PR.I	OpRet	-1.03 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2010-07-30 Maturity Price : 25.50 Evaluated at bid price : 25.83 Bid-YTW : 4.21 %
CM.PR.D	Perpetual-Discount	1.04 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-10-26 Maturity Price : 23.94 Evaluated at bid price : 24.26 Bid-YTW : 5.95 %
PWF.PR.L	Perpetual-Discount	1.20 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-10-26 Maturity Price : 21.16 Evaluated at bid price : 21.16 Bid-YTW : 6.06 %
BAM.PR.M	Perpetual-Discount	1.31 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-10-26 Maturity Price : 17.84 Evaluated at bid price : 17.84 Bid-YTW : 6.75 %
TD.PR.A	FixedReset	1.46 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2014-03-02 Maturity Price : 25.00 Evaluated at bid price : 25.76 Bid-YTW : 4.21 %
IAG.PR.C	FixedReset	1.48 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2014-01-30 Maturity Price : 25.00 Evaluated at bid price : 26.82 Bid-YTW : 4.46 %
PWF.PR.G	Perpetual-Premium	1.89 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-10-26 Maturity Price : 23.95 Evaluated at bid price : 24.25 Bid-YTW : 6.11 %

Volume Highlights
Issue	Index	Shares Traded	Notes
MFC.PR.D	FixedReset	95,714	RBC crossed 77,100 at 27.85. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-07-19 Maturity Price : 25.00 Evaluated at bid price : 27.79 Bid-YTW : 4.20 %
CM.PR.L	FixedReset	63,697	Nesbitt crossed 50,000 at 27.40. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-05-30 Maturity Price : 25.00 Evaluated at bid price : 27.40 Bid-YTW : 4.23 %
BNS.PR.X	FixedReset	60,425	RBC bought 10,000 from Scotia at 27.24; then crossed 25,000 at the same price. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-05-25 Maturity Price : 25.00 Evaluated at bid price : 27.30 Bid-YTW : 4.09 %
BNS.PR.L	Perpetual-Discount	54,720	Desjardins crossed two lots of 24,000 each at 19.65 apiece. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-10-26 Maturity Price : 19.55 Evaluated at bid price : 19.55 Bid-YTW : 5.79 %
NA.PR.L	Perpetual-Discount	51,571	RBC crossed 50,800 at 20.84. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-10-26 Maturity Price : 20.80 Evaluated at bid price : 20.80 Bid-YTW : 5.85 %
RY.PR.Y	FixedReset	41,650	Nesbitt sold 10,000 to anonymous; then crossed 18.700 at the same price. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-12-24 Maturity Price : 25.00 Evaluated at bid price : 26.95 Bid-YTW : 4.36 %
There were 38 other index-included issues trading in excess of 10,000 shares.

This entry was posted on Monday, October 26th, 2009 at 6:55 pm and is filed under Market Action. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.