The Financial Post published an interesting factoid on Canadas:
Canadian 10-year yields gained 47 basis points to 3.28% today, from 2.81% on Nov. 4, the day after the Fed unveiled plans to buy US$600-billion in Treasuries through June to spur economic growth. The yields are rising so fast they exceed all 18 of the March 2011 forecasts of economists in a Bloomberg survey. The highest, from Kurt Karl, Swiss Re’s chief U.S. economist, calls for yields at 3.2% by then. The weighted average estimate is 2.95%.
The Boston Fed has released a four-part video lecture on the Great Recession. I must say, I’m pleased and impressed at this sort of outreach programme – I prefer written commentary myself, but I know most people prefer video. We never see anything like this in Canada … pity.
TD CEO Ed Clark announced today that he is an enthusiastic proponent of moral hazard:
If policy makers want Canadians to stop borrowing too much, it’s up to Ottawa, not financial institutions, to force a change in behaviour, says one of Bay Street’s longest-serving senior bankers.
Toronto-Dominion Bank chief executive officer Ed Clark acknowledged Canadians’ alarming debt levels, but said the issue is a matter of public policy and would be best resolved by a tighter government rules on residential mortgages.
In an interview with The Globe and Mail, Mr. Clark said that no bank wants to be the first to impose stricter requirements on borrowers out of fear that it will suffer a major loss of customers to rivals. Personal banking “is a highly competitive industry,” Mr. Clark said. “If we said ‘Look, we’re going to be heroes and save Canada from itself, and we’ll impose a whole new [mortgage] regime on everyone else,’ the other four [large] banks would say ‘Let’s carve them up.’ ”
Listen up, Mr. Clark! Nobody wants or needs you to save Canada from itself. You’re being paid a rather fat salary to save TD Bank from itself. Why are you so eager to make mortgage loans to poor credits? Why are you so worried that the poor credits will stampede to other banks, leaving TD in the miserable position of having a high quality mortgage portfolio?
Mr. Clark proposes government action, citing rules on credit cards as an example of where the banks follow whatever guidelines are provided. The Canadian banking system is run by “adults” who are able to come together and work with the government to guide the process, he said, so there is no trouble sitting everyone down at the same table.
The Canadian banking system is run by weak-kneed oligarchy of idiots, who have the idea that tough management consists of begging Mama to tell them what to do.
Naturally, the Globe and Mail is quick to urge arbitrary measures:
From Gordon Nixon of Royal Bank of Canada, to Ed Clark of Toronto-Dominion Bank, to William Downe of Bank of Montreal, chief executives of big banks are all on the record with some version of the same refrain: Something needs to be done to slow the growth in consumer debt.
So who can do it? The banks, you say? They could just turn down customers seeking loans more often. It’s not going to happen. Saying no would make the banks the bad guys. Plus, the bank executives are wont to point out, probably rightly, that competitive pressures mean that even if one says no, another will probably say yes.
If the government is to do anything, it has two logical measures: tighten up the rules on the risk-weighting of loans (via OSFI) and/or charge more to insure risky mortgages (via the CMHC). Early on in the US housing crunch, I suggested a regime whereby 25% (or so) capital was required on mortgages. If the consumer didn’t put it up as a down payment, then the required amount gets deducted, dollar for dollar, from the bank’s tier 1 capital. That’s the capital part of the loan. Then the rest gets risk-weighted as a normal mortgage.
More and more, I’m seeing a move towards central planning. It always sounds good and it never works.
Good news on the Canadian preferred share market today, as investors lost less than usual on continued elevated volume. PerpetualDiscounts were down 15bp, while FixedResets managed to gain a whopping 3bp.
PerpetualDiscounts now yield 5.48%, equivalent to 7.67% interest at the standard equivalency factor of 1.4x. Long Corporates now yield about 5.6%, so the pre-tax interest-equivalent spread (also called the Seniority Spread) is now about 210bp, a widening from the 200bp reported December 8 as long corporate yields increased but interest-equivalent PerpetualDiscount yields increased more.
| 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 | -0.0130 % | 2,280.8 |
| FixedFloater | 4.73 % | 3.22 % | 27,886 | 18.99 | 1 | 0.0000 % | 3,557.5 |
| Floater | 2.62 % | 2.40 % | 51,467 | 21.23 | 4 | -0.0130 % | 2,462.6 |
| OpRet | 4.80 % | 3.20 % | 73,752 | 2.39 | 8 | 0.2991 % | 2,387.0 |
| SplitShare | 5.35 % | 1.12 % | 1,117,248 | 0.98 | 4 | 0.0303 % | 2,441.0 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.2991 % | 2,182.7 |
| Perpetual-Premium | 5.73 % | 5.62 % | 155,957 | 6.42 | 27 | 0.2459 % | 1,998.5 |
| Perpetual-Discount | 5.47 % | 5.48 % | 275,113 | 14.65 | 51 | -0.1474 % | 1,992.7 |
| FixedReset | 5.27 % | 3.68 % | 363,640 | 3.10 | 52 | 0.0268 % | 2,244.9 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| RY.PR.F | Perpetual-Discount | -1.58 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-12-15 Maturity Price : 21.44 Evaluated at bid price : 21.75 Bid-YTW : 5.15 % |
| RY.PR.A | Perpetual-Discount | -1.15 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-12-15 Maturity Price : 21.43 Evaluated at bid price : 21.43 Bid-YTW : 5.24 % |
| GWO.PR.H | Perpetual-Discount | -1.13 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-12-15 Maturity Price : 22.65 Evaluated at bid price : 22.84 Bid-YTW : 5.32 % |
| TRP.PR.C | FixedReset | 1.12 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-12-15 Maturity Price : 25.25 Evaluated at bid price : 25.30 Bid-YTW : 4.03 % |
| MFC.PR.C | Perpetual-Discount | 1.38 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-12-15 Maturity Price : 19.84 Evaluated at bid price : 19.84 Bid-YTW : 5.71 % |
| FTS.PR.G | FixedReset | 1.87 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2013-10-01 Maturity Price : 25.00 Evaluated at bid price : 25.67 Bid-YTW : 4.26 % |
| GWO.PR.L | Perpetual-Premium | 7.16 % | Merely a reversal of yesterday‘s nonsense. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-12-15 Maturity Price : 24.19 Evaluated at bid price : 24.40 Bid-YTW : 5.80 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| MFC.PR.D | FixedReset | 169,481 | Nesbitt crossed 150,000 at 26.75. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-07-19 Maturity Price : 25.00 Evaluated at bid price : 26.75 Bid-YTW : 4.51 % |
| CIU.PR.C | FixedReset | 126,400 | Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-12-15 Maturity Price : 23.11 Evaluated at bid price : 24.95 Bid-YTW : 3.63 % |
| TRP.PR.A | FixedReset | 105,906 | Nesbitt crossed 100,000 at 25.85. YTW SCENARIO Maturity Type : Call Maturity Date : 2015-01-30 Maturity Price : 25.00 Evaluated at bid price : 25.82 Bid-YTW : 3.68 % |
| TD.PR.M | OpRet | 103,553 | Nesbitt crossed 100,000 at 25.85. YTW SCENARIO Maturity Type : Call Maturity Date : 2011-05-30 Maturity Price : 25.50 Evaluated at bid price : 25.77 Bid-YTW : 3.55 % |
| MFC.PR.A | OpRet | 72,203 | Nesbitt crossed 35,000 at 25.65; then bought 17,500 from TD at the same price. YTW SCENARIO Maturity Type : Soft Maturity Maturity Date : 2015-12-18 Maturity Price : 25.00 Evaluated at bid price : 25.64 Bid-YTW : 3.55 % |
| SLF.PR.E | Perpetual-Discount | 69,003 | Nesbitt crossed 26,000 at 19.66 and 25,000 at 19.69. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-12-15 Maturity Price : 19.68 Evaluated at bid price : 19.68 Bid-YTW : 5.74 % |
| There were 49 other index-included issues trading in excess of 10,000 shares. | |||
[…] spread now stans at about 220bp, a significant widening from the 210bp reported on December 15, as the improvement in tone in the bond market has not been matched by the preferred […]