December 1, 2014

Moody’s downgraded Japan:

Moody’s Investors Service on Monday downgraded Japan’s sovereign debt rating by one notch to A1, citing rising uncertainty over the country’s ability to hit its debt-reduction goal.

The announcement briefly sent the yen to a seven-year low against the dollar and pushed 10-year Japanese government bond (JGB) futures down by 10 ticks.

The U.S. rating agency said the outlook was stable.

Tom Byrne, regional credit officer of Moody’s, said the downgrade was closely linked to [Japanese Prime Minister] Mr. [Shinzo] Abe’s decision to delay next year’s scheduled sales tax hike, which made it more challenging for Japan to achieve its target of reducing the primary budget deficit in fiscal 2020.

“There is concern that fiscal policy in its current state will not achieve the long-term fiscal goals,” he said.

Hours before Moody’s announcement, Mr. Abe had stressed in a televised public debate that Japan remained committed to fiscal reform, and that the Bank of Japan’s ultraloose policy was not aimed at monetizing public debt.

But Moody’s warned that the BOJ’s efforts to achieve its 2-per-cent inflation target through aggressive money printing may push up bond yields and raise government borrowing costs.

Remember that US recovery that would save the world?

U.S. stocks fell for a second day as weaker data on Black Friday sales and China manufacturing overshadowed a rebound in oil and expansion in American factories.

Retailers in the Standard & Poor’s 500 Index (SPX) fell the most in a month as post-Thanksgiving holiday sales came in below forecasts. Apple Inc. fell as much as 6.4 percent in early trading before paring the loss in half. Chevron Corp. and Exxon Mobil Corp. gained at least 2 percent as crude oil ended a four-day skid.

The S&P 500 fell 0.7 percent to 2,053.44 at 4 p.m. in New York. The Dow Jones Industrial Average slumped 51.44 points, or 0.3 percent, to 17,776.8. The technology-heavy Nasdaq 100 Index lost 1.2 percent. About 7.6 billion listed shares changed hands in the U.S., 13 percent higher than the three-month daily average.

Black Friday, as noted above, was a fizzle:

Spending tumbled an estimated 11 percent over the weekend from a year earlier, the Washington-based National Retail Federation said yesterday. And more than 6 million shoppers who had been expected to hit stores never showed up.

Consumers were unmoved by retailers’ aggressive discounts and longer Thanksgiving hours, raising concern that signs of recovery in recent months won’t endure. Retailers also were targeted by protesters, who called on consumers to boycott Black Friday to make a statement about police violence. Still, the NRF cast the decline in a positive light, saying it showed shoppers were confident enough to skip the initial rush for discounts.

There may be relatively little effect on Canada, though, as Roy Osing reminds us that our main product is mewling sycophancy:

… I was less than impressed with the organization structure he proposed. It was a structure I had “lived with” in my previous life and could see the pluses and minuses.

When asked whether I could support the proposed structure, I asked for time to consider it before declaring my position.

One of my peers virtually condemned it and with his “outside voice” declared his non-support; he left the company soon thereafter.

A previous president once told me “Roy, if your boss puts forward what you consider to be a ‘dumb idea’, you only have two choices: one, support it and try to make it work; or two, leave.”

And there’s the usual amount of rate punditry:

Poloz will keep his benchmark overnight rate at 1 percent Dec. 3 according to all 22 economists surveyed by Bloomberg News through Nov. 28, stretching the pause that began with Mark Carney in 2010. That would make it the longest since February 1944 to September 1950, exceeding the October 1950 to January 1955 hiatus.

While Fed policy makers debate the language they might use to flag potential policy-rate increases, their Canadian counterparts say they remain focused on providing stimulus to bring the world’s 11th-largest economy back to full output over the next two years.

Canada’s economic growth slowed to a 2.8 percent annualized pace in the third quarter from 3.6 percent the prior three months, Statistics Canada reported Nov. 28. In contrast, U.S. growth came in at 3.9 percent.

Poloz won’t raise rates until the fourth quarter of next year, according to a Bloomberg economist survey. The quarter-point increase forecast for Canada compares with an estimated Fed move to 1 percent from 0.25 percent over that time.

The anticipation of rising Fed rates has is already helping keep Canadian bond yields lower than Treasuries. Canada’s five-year bonds had a 1.35 percent yield at 9:25 a.m. Toronto time today, while similar Treasuries yielded 1.46 percent.

In honour of Cyber Monday, the Canadian preferred share market was on sale today, with PerpetualDiscounts down 12bp, FixedResets losing 18bp and DeemedRetractibles off 11bp. Volatility was high and comprised almost entirely of losers. Volume was below average.

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 -0.9738 % 2,518.5
FixedFloater 0.00 % 0.00 % 0 0.00 0 -0.9738 % 3,987.3
Floater 2.99 % 3.11 % 62,372 19.39 4 -0.9738 % 2,677.3
OpRet 4.39 % -12.35 % 25,827 0.08 2 -0.0195 % 2,759.6
SplitShare 4.28 % 3.90 % 47,274 3.75 5 -0.3161 % 3,188.8
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.0195 % 2,523.3
Perpetual-Premium 5.42 % -8.03 % 71,155 0.09 20 -0.0897 % 2,483.4
Perpetual-Discount 5.12 % 5.06 % 114,040 15.36 15 -0.1241 % 2,678.9
FixedReset 4.17 % 3.51 % 178,614 8.64 73 -0.1848 % 2,582.5
Deemed-Retractible 4.97 % -1.78 % 99,350 0.09 40 -0.1064 % 2,614.6
FloatingReset 2.53 % -0.48 % 59,985 0.08 5 -0.0469 % 2,554.6
Performance Highlights
Issue Index Change Notes
HSE.PR.A FixedReset -4.13 % Completely legitimate and not just another Toronto Stock Exchange screw up, for a change. The closing quote was 21.81-00 and all trades after 2:30 pm were under 22.00, although the VWAP for the day was 22.22. The thumping is probably due to the HSE new issue, FixedReset, 4.50%+313 announced today.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-01
Maturity Price : 21.47
Evaluated at bid price : 21.81
Bid-YTW : 3.61 %
MFC.PR.F FixedReset -1.45 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.81
Bid-YTW : 4.59 %
BAM.PR.M Perpetual-Discount -1.25 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-01
Maturity Price : 21.73
Evaluated at bid price : 22.08
Bid-YTW : 5.46 %
GWO.PR.N FixedReset -1.13 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.03
Bid-YTW : 4.74 %
BAM.PR.B Floater -1.10 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-01
Maturity Price : 17.02
Evaluated at bid price : 17.02
Bid-YTW : 3.11 %
CGI.PR.D SplitShare -1.06 % YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2023-06-14
Maturity Price : 25.00
Evaluated at bid price : 25.23
Bid-YTW : 3.62 %
MFC.PR.G FixedReset 1.18 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2016-12-19
Maturity Price : 25.00
Evaluated at bid price : 25.82
Bid-YTW : 2.65 %
Volume Highlights
Issue Index Shares
Traded
Notes
TRP.PR.A FixedReset 172,040 RBC crossed 142,100 at 21.39.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-01
Maturity Price : 21.32
Evaluated at bid price : 21.32
Bid-YTW : 3.86 %
RY.PR.B Deemed-Retractible 124,636 National crossed 120,000 at 25.44.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-12-31
Maturity Price : 25.25
Evaluated at bid price : 25.40
Bid-YTW : -1.48 %
TRP.PR.D FixedReset 80,232 RBC crossed 65,000 at 25.46.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-01
Maturity Price : 23.33
Evaluated at bid price : 25.39
Bid-YTW : 3.63 %
ENB.PR.N FixedReset 57,172 RBC crossed 37,600 at 24.85.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-01
Maturity Price : 23.13
Evaluated at bid price : 24.66
Bid-YTW : 3.98 %
TD.PF.A FixedReset 51,001 Scotia crossed 41,400 at 25.53.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-01
Maturity Price : 23.32
Evaluated at bid price : 25.50
Bid-YTW : 3.47 %
PWF.PR.L Perpetual-Premium 47,395 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-10-31
Maturity Price : 25.00
Evaluated at bid price : 25.35
Bid-YTW : 4.03 %
There were 26 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
BAM.PF.G FixedReset Quote: 25.80 – 26.30
Spot Rate : 0.5000
Average : 0.2987

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2020-06-30
Maturity Price : 25.00
Evaluated at bid price : 25.80
Bid-YTW : 3.81 %

BAM.PF.F FixedReset Quote: 25.71 – 26.15
Spot Rate : 0.4400
Average : 0.2765

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2019-09-30
Maturity Price : 25.00
Evaluated at bid price : 25.71
Bid-YTW : 4.05 %

GWO.PR.Q Deemed-Retractible Quote: 25.11 – 25.50
Spot Rate : 0.3900
Average : 0.2728

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.11
Bid-YTW : 5.07 %

TD.PR.R Deemed-Retractible Quote: 26.32 – 26.79
Spot Rate : 0.4700
Average : 0.3614

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-12-31
Maturity Price : 25.75
Evaluated at bid price : 26.32
Bid-YTW : -15.06 %

SLF.PR.A Deemed-Retractible Quote: 24.25 – 24.50
Spot Rate : 0.2500
Average : 0.1663

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.25
Bid-YTW : 5.11 %

CU.PR.G Perpetual-Discount Quote: 22.50 – 22.75
Spot Rate : 0.2500
Average : 0.1686

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-01
Maturity Price : 22.19
Evaluated at bid price : 22.50
Bid-YTW : 5.01 %

Leave a Reply

You must be logged in to post a comment.