PrefBlog

Comrade Peace-Prize wants to make the Build America programme permanent:

Obama will propose expanding the eligibility of the bonds to include original financing for capital projects when he submits his 2011 budget to Congress tomorrow, according to the official, who requested anonymity.

Under the Build America program, part of the economic stimulus package Obama signed into law last February, the federal government provides a 35 percent rebate on issuers’ interest costs. That would go down to 28 percent under the proposal in the president’s budget, according to a Treasury Department official who spoke on condition of anonymity.
…
Build America Bonds “were successful in helping to repair a severely damaged municipal finance market, making much needed credit available at lower borrowing costs for infrastructure projects that create jobs,” Treasury Secretary Timothy Geithner said in an e-mailed statement released by his office. “By making Build America Bonds a permanent and expanded financing tool for state and local governments, we’re investing in our country’s long term economic growth in a cost-effective way.”

The ever-opportunistic CC&L group is establishing a mutual fund that will invest in these securities:

As at December 14, 2009, securities in the Indicative Portfolio had a weighted average Investment Grade credit rating of ‘‘AA’’
by S&P (or equivalent) and average Effective Duration of 11.1 years.
…
The Fund will have a term of approximately five years, terminating on or about February
, 2015, and the Fund’s investments will be liquidated prior to such termination at the then prevailing market prices.
…
‘‘Effective Duration’’ is a measure of the estimated percentage change in price for a 100 basis point change in interest rates and takes into consideration changes in cash flows and values that can occur in bonds with embedded options such as call and put provisions.

“Yep”, says Granny Oakum, “I’m going to invest in long bonds, but it’s safe because the find winds up in five years!”

What I consider fascinating about the whole thing is the indication that municipalities’ financing needs can no longer be met in the US domestic tax-exempt market. Sic transit gloria mundi.

However, there is still a place for derivatives:

Investment bankers in the US have begun using equity derivatives to convert restricted shares paid as bonuses into cash, side-stepping new guidelines on remuneration which were designed to prevent bankers cashing out for at least three years, according to a headhunter.

The bankers are using over-the-counter equity derivatives strategies such as call options, put options and collars to monetise their shares now, albeit at a discount to what they would receive if they waited for the restrictions to lift.

Politicians reaffirmed their total committment to the idea that bank managers should embrace long-term thinking:

“We have to show short-term results,” French Finance Minister Christine Lagarde said in an interview at the conference shortly after chairing a private meeting between bankers, politicians and regulators.

U.K. Chancellor of the Exchequer Alistair Darling, White House economic adviser Lawrence Summers and U.S. House Financial Services Committee Chairman Barney Frank, who were all in Davos, also expressed frustration.

“We simply don’t have years to sort the problem out,” Darling told reporters in Davos on Jan. 29. “There needs to be a sense of urgency.”

Quck! How many years did it take to negotiate Basel II?:

However, despite its contributions, the [Basel I] accord was quickly perceived to be inadequate and since the early 1990s there began an on-going process of updating and reforming the accord to match changing realities in the world of banking, and the preferences and concerns of major players in the system. A series of adjustments were made to the accord in the early to mid-nineties before the inevitable realisation set in that a replacement accord was needed rather than piecemeal reform. In June 1999 the Basel Committee announced that it would begin negotiations on a new capital accord to replace the 1988 agreement.
…
Of particular interest in this story is the continued dominance of the United States over European regulatory authorities. At several moments in the discussions the US has presented its European counterparts with a fait accompli in the content of the new accord, and has been willing only to discuss changes to the wording, not substance. Most damning, in spring 2003 after having gained most of the concessions it sought from fellow Basel members, the US announced that it would likely apply the accord to only a handful of banks, thus greatly weakening the potential impact of the accord and calling into question its validity.

My favourite corporate spokesman – ever – is Goldman Sachs’ Lucas Van Praag.

Not the greatest of days for the Canadian preferred share market, as PerpetualDiscounts lost 17bp while FixedResets gaoing 2bp, on moderate volume.

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	3.19 %	3.94 %	27,516	19.91	1	-0.1689 %	1,730.7
FixedFloater	5.65 %	3.74 %	35,267	19.34	1	-0.3623 %	2,798.6
Floater	2.11 %	1.78 %	41,251	23.06	4	0.3908 %	2,174.3
OpRet	4.84 %	-3.49 %	109,610	0.09	13	0.0472 %	2,320.2
SplitShare	6.31 %	1.24 %	146,727	0.08	2	0.4152 %	2,128.7
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	0.0472 %	2,121.6
Perpetual-Premium	5.75 %	5.56 %	74,631	2.21	7	0.1639 %	1,891.0
Perpetual-Discount	5.78 %	5.81 %	175,710	14.17	69	-0.1734 %	1,823.4
FixedReset	5.43 %	3.62 %	318,733	3.81	42	0.0175 %	2,177.9

Performance Highlights
Issue	Index	Change	Notes
HSB.PR.C	Perpetual-Discount	-1.47 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-02-01 Maturity Price : 22.60 Evaluated at bid price : 22.78 Bid-YTW : 5.66 %
RY.PR.D	Perpetual-Discount	-1.02 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-02-01 Maturity Price : 20.39 Evaluated at bid price : 20.39 Bid-YTW : 5.53 %
TD.PR.P	Perpetual-Discount	-1.01 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-02-01 Maturity Price : 23.42 Evaluated at bid price : 23.61 Bid-YTW : 5.59 %
BNA.PR.C	SplitShare	1.03 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2019-01-10 Maturity Price : 25.00 Evaluated at bid price : 19.55 Bid-YTW : 7.95 %
CIU.PR.A	Perpetual-Discount	1.19 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-02-01 Maturity Price : 21.26 Evaluated at bid price : 21.26 Bid-YTW : 5.51 %
BAM.PR.K	Floater	1.27 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-02-01 Maturity Price : 15.18 Evaluated at bid price : 15.18 Bid-YTW : 2.61 %
BAM.PR.B	Floater	1.97 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-02-01 Maturity Price : 15.50 Evaluated at bid price : 15.50 Bid-YTW : 2.55 %
IAG.PR.C	FixedReset	1.99 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2014-01-30 Maturity Price : 25.00 Evaluated at bid price : 27.19 Bid-YTW : 3.95 %

Volume Highlights
Issue	Index	Shares Traded	Notes
PWF.PR.J	OpRet	303,035	RBC crossed 244,600 at 26.08. TD crossed 50,000 at the same price. YTW SCENARIO Maturity Type : Call Maturity Date : 2010-03-03 Maturity Price : 25.75 Evaluated at bid price : 25.91 Bid-YTW : -2.96 %
MFC.PR.D	FixedReset	131,789	RBC crossed two blocks of 25,000 at 28.09 and 28.10, followed by 49,000 at 28.15. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-07-19 Maturity Price : 25.00 Evaluated at bid price : 28.06 Bid-YTW : 3.83 %
TD.PR.M	OpRet	79,800	Desjardins crossed 75,000 at 26.25. YTW SCENARIO Maturity Type : Call Maturity Date : 2010-03-03 Maturity Price : 26.00 Evaluated at bid price : 26.25 Bid-YTW : -7.01 %
SLF.PR.D	Perpetual-Discount	57,951	RBC crossed two blocks of 23,200 at 19.29 and 19.30. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-02-01 Maturity Price : 19.20 Evaluated at bid price : 19.20 Bid-YTW : 5.87 %
TRP.PR.A	FixedReset	35,154	YTW SCENARIO Maturity Type : Call Maturity Date : 2015-01-30 Maturity Price : 25.00 Evaluated at bid price : 26.00 Bid-YTW : 3.81 %
HSB.PR.E	FixedReset	32,613	RBC crossed 25,000 at 28.00. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-07-30 Maturity Price : 25.00 Evaluated at bid price : 28.00 Bid-YTW : 3.87 %
There were 29 other index-included issues trading in excess of 10,000 shares.

This entry was posted on Monday, February 1st, 2010 at 9:21 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.