Category: Market Action

Market Action

May 26, 2010

Regulatory capture is getting some media attention (hat tip: Financial Webring Forum):

A CBS News analysis of the revolving door between Goldman and government reveals at least four dozen former employees, lobbyists or advisers at the highest reaches of power both in Washington and around the world.

For example, former Treasury Secretary Henry Paulson is a former Goldman CEO; Arthur Levitt, the head of the Securities and Exchange Commission is a now a Goldman adviser; and former House Majority Leader Dick Gephardt is now a paid lobbyist for the firm.

There’s more, less well written. Automatically branding every instance of revolving door regulation as “corruption” is an extreme view; conflicts of interest are everywhere and – even in the finance world! – most people are not crooks.

A lot of it has simply to do with the nature of the world: I’ve seen ads for very senior risk management officials at salaries best described as “pathetic”. Anybody smart enough and knowledgable enough and tough enough to do a good job at the post could make a lot more doing something else.

Hands up who wants, say, the head of the Ontario Securities Commission or the Superintendent of Financial Institutions to get a government salary of – say – $5-million p.a. … didn’t think so.

The influence of retail investors on markets is getting more interesting to track. During the crunch, we saw how US – MMF redemptions exacerbated the funding crisis and forced (encouraged?) the Fed to set up dollar swaps. Now junk bonds are getting the same treatment:

Yields on junk bonds rose to the highest since December relative to Treasuries, with prices declining on debt from American International Group Inc. to Harrah’s Entertainment Inc. on concern Europe’s debt strains will derail the global economic recovery.

Spreads widened 27 basis points yesterday to 724 basis points, or 7.24 percentage points, the highest since Dec. 9, according to Bank of America Merrill Lynch index data. That’s up from a low this year of 542 basis points on April 26.

High-yield debt has lost 4.6 percent in May, on pace for the first drop in 15 months, after gaining 73 percent from the market bottom in March 2009 through last month. Investors withdrew more than $3.1 billion in the past two weeks from junk funds amid growing concern that European efforts to control government deficits would interrupt the recovery, making it harder for the neediest companies to reduce and refinance their borrowings.
…
“Due to low levels of cash at mutual funds, redemptions are forcing sales,” said Brian Yelvington, head of fixed-income strategy at Knight Libertas LLC in Greenwich, Connecticut.

This looks like an unintended consequence of the electronic era – now that it is so easy to switch between funds of the same family at 3am, people are doing it. Retail is, in general, more jumpy than institutional money, so it’s interesting to speculate where all this might lead. One possibility is a greater emphasis by issuers on long term debt, paying up if they need to.

Volume picked up today to levels approaching the average of the past two months and PerpetualDiscounts caught fire, gaining 65bp. FixedResets were up 12bp.

PerpetualDiscounts now yield 6.36%, equivalent to 8.90% interest at the standard equivalency factor of 1.4x. Long Corporates now yield about 5.65%, so the pre-tax interest-equivalent spread (also called the Seniority Spread) is now about 325bp, a mild (and perhaps spurious) decline from the 330bp reported on May 16.

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	2.68 %	2.77 %	47,492	20.62	1	0.0000 %	2,063.4
FixedFloater	5.27 %	3.33 %	34,094	19.92	1	-0.4819 %	3,039.2
Floater	2.18 %	2.49 %	101,632	21.02	3	0.2400 %	2,232.2
OpRet	4.89 %	3.92 %	97,161	0.98	11	-0.0284 %	2,307.1
SplitShare	6.44 %	6.18 %	115,266	3.56	2	-0.2217 %	2,151.9
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	-0.0284 %	2,109.6
Perpetual-Premium	5.58 %	4.82 %	22,790	15.69	1	-0.7984 %	1,806.8
Perpetual-Discount	6.29 %	6.36 %	210,299	13.37	77	0.6486 %	1,701.0
FixedReset	5.49 %	4.30 %	453,387	3.66	45	0.1247 %	2,150.4

Performance Highlights
Issue	Index	Change	Notes
SLF.PR.F	FixedReset	-1.30 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2014-07-30 Maturity Price : 25.00 Evaluated at bid price : 26.48 Bid-YTW : 4.32 %
IAG.PR.F	Perpetual-Discount	-1.30 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-26 Maturity Price : 22.58 Evaluated at bid price : 22.70 Bid-YTW : 6.67 %
CM.PR.R	OpRet	-1.08 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2010-06-25 Maturity Price : 25.45 Evaluated at bid price : 25.71 Bid-YTW : -3.30 %
PWF.PR.L	Perpetual-Discount	1.03 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-26 Maturity Price : 19.65 Evaluated at bid price : 19.65 Bid-YTW : 6.58 %
PWF.PR.K	Perpetual-Discount	1.05 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-26 Maturity Price : 19.30 Evaluated at bid price : 19.30 Bid-YTW : 6.50 %
SLF.PR.G	FixedReset	1.16 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-26 Maturity Price : 24.45 Evaluated at bid price : 24.50 Bid-YTW : 3.98 %
ELF.PR.F	Perpetual-Discount	1.28 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-26 Maturity Price : 18.99 Evaluated at bid price : 18.99 Bid-YTW : 7.10 %
CIU.PR.A	Perpetual-Discount	1.30 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-26 Maturity Price : 18.75 Evaluated at bid price : 18.75 Bid-YTW : 6.17 %
GWO.PR.G	Perpetual-Discount	1.30 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-26 Maturity Price : 20.30 Evaluated at bid price : 20.30 Bid-YTW : 6.53 %
GWO.PR.L	Perpetual-Discount	1.38 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-26 Maturity Price : 21.92 Evaluated at bid price : 22.00 Bid-YTW : 6.54 %
BMO.PR.K	Perpetual-Discount	1.40 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-26 Maturity Price : 21.46 Evaluated at bid price : 21.80 Bid-YTW : 6.05 %
POW.PR.A	Perpetual-Discount	1.44 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-26 Maturity Price : 21.51 Evaluated at bid price : 21.77 Bid-YTW : 6.52 %
CL.PR.B	Perpetual-Discount	1.45 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-26 Maturity Price : 24.26 Evaluated at bid price : 24.56 Bid-YTW : 6.47 %
CM.PR.E	Perpetual-Discount	1.48 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-26 Maturity Price : 22.26 Evaluated at bid price : 22.63 Bid-YTW : 6.25 %
GWO.PR.M	Perpetual-Discount	1.53 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-26 Maturity Price : 23.11 Evaluated at bid price : 23.26 Bid-YTW : 6.38 %
POW.PR.C	Perpetual-Discount	1.58 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-26 Maturity Price : 22.28 Evaluated at bid price : 22.55 Bid-YTW : 6.52 %
PWF.PR.F	Perpetual-Discount	1.60 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-26 Maturity Price : 20.29 Evaluated at bid price : 20.29 Bid-YTW : 6.56 %
POW.PR.B	Perpetual-Discount	1.66 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-26 Maturity Price : 20.85 Evaluated at bid price : 20.85 Bid-YTW : 6.52 %
BNS.PR.Y	FixedReset	1.67 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-26 Maturity Price : 24.25 Evaluated at bid price : 24.30 Bid-YTW : 3.58 %
W.PR.J	Perpetual-Discount	1.81 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-26 Maturity Price : 21.38 Evaluated at bid price : 21.38 Bid-YTW : 6.66 %
IAG.PR.E	Perpetual-Discount	1.97 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-26 Maturity Price : 23.48 Evaluated at bid price : 23.65 Bid-YTW : 6.34 %
ELF.PR.G	Perpetual-Discount	2.79 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-26 Maturity Price : 16.60 Evaluated at bid price : 16.60 Bid-YTW : 7.28 %

Volume Highlights
Issue	Index	Shares Traded	Notes
SLF.PR.G	FixedReset	287,402	Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-26 Maturity Price : 24.45 Evaluated at bid price : 24.50 Bid-YTW : 3.98 %
RY.PR.P	FixedReset	170,105	Nesbitt crossed blocks of 91,400 and 75,000, both at 27.03. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-03-26 Maturity Price : 25.00 Evaluated at bid price : 26.99 Bid-YTW : 4.03 %
RY.PR.L	FixedReset	106,176	Nesbitt crossed blocks of 24,500 shares, 19,500 and 40,000, all at 26.25. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-03-26 Maturity Price : 25.00 Evaluated at bid price : 26.25 Bid-YTW : 4.17 %
RY.PR.A	Perpetual-Discount	94,128	Nesbitt crossed blocks of 10,600 and 50,000, both at 18.70. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-26 Maturity Price : 18.62 Evaluated at bid price : 18.62 Bid-YTW : 6.02 %
TD.PR.O	Perpetual-Discount	89,757	TD crossed 70,000 at 20.05. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-26 Maturity Price : 20.11 Evaluated at bid price : 20.11 Bid-YTW : 6.11 %
BNS.PR.N	Perpetual-Discount	82,285	TD crossed 70,000 at 21.70. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-26 Maturity Price : 21.32 Evaluated at bid price : 21.61 Bid-YTW : 6.14 %
There were 38 other index-included issues trading in excess of 10,000 shares.

Market Action

May 25, 2010

Monday’s Globe & Mail had a book review by Adriana Barton (on page 3, no less!), Gorillas that we missed: The deceptive powers of perception regarding a new book by Christopher Chabris and Daniel Simons, The Invisible Gorilla: And Other Ways Our Intuitions Deceive Us.

The centerpiece of the book is an experiment in psychology:

It’s not a joke – it’s psychology’s famous “gorilla experiment,” used in schools, corporations and anti-terrorism units to show how blind we can be when we’re paying attention.

In the test, observers are asked to count basketball passes between two teams – half of them don’t see a woman in a gorilla suit walking into the action and thumping her chest.

It illustrates the phenomenon of “inattentional blindness”- how people can miss events occurring directly in front of them.

So why am a highlighting it on PrefBlog? Three of the six “distorted beliefs about our brains” are directly related to the investment business:

Confidence: We equate self-assurance with competence, in ourselves and others.
Knowledge: We mistake familiarity with subject matter for knowledge.
Cause:We draw conclusions about a root cause based on the order and relationship of events.

Most successful brokers – and money managers, for that matter – exude confidence and spend a great deal of time “staying abreast of the market”, which in general has little, if any, effect on actual returns earned by actual dollars. The third point will be familiar to anybody who has ever watched a talking head confidently recapitulating the day’s market action in terms of the Knowledge he has so arduously gained.

I’ve ordered the book and look forward to reading it: it provides an academic sheen to my beliefs. I’m no more immune to perceptual bias than the next guy! I can only hope it reinforces my prejudices by as much as The Fortune Sellers did.

Additional reviews may be found in The Washington Post and National Public Radio, inter alia.

So – what’s happening with Fannie & Freddie? Nothing:

Fannie Mae and Freddie Mac, the mortgage-finance giants that are now wards of the government, are on their way to becoming the single-biggest cost to taxpayers from the financial crisis—ahead of the banks, auto makers, or even insurer American International Group.

But while Washington is on the cusp of enacting a broad revamp of the financial regulatory infrastructure, it’s in no hurry to touch Fannie and Freddie.

“The administration has put it on the ‘too hard’ pile,” says David Felt, a former senior lawyer at the companies’ federal regulator who presided over the government takeover of the companies in 2008.

Why address a problem when you can score cheap political points by vilifying bit players like Goldman Sachs?

Even when …:

Fannie Mae and Freddie Mac, the mortgage companies operating under U.S. conservatorship, will require additional government aid amid losses stemming from the 2008 credit crisis, the nation’s top housing regulator said in its annual report to Congress.

“While critical to supporting the ongoing functioning of the nation’s housing finance system, the enterprises would be unable to serve the mortgage market in the absence of the ongoing financial support,” said Edward DeMarco, acting director of the Federal Housing Finance Agency, said in the report released today.

Corporate debt is getting less liquid:

The gap between the cost to buy and sell corporate credit reached the widest in nine months in another sign that investors are increasingly wary of all but the safest government securities amid Europe’s sovereign debt crisis.

The bid-ask spread for credit-default swaps on U.S. investment-grade bonds surged to an average 8.86 basis points as of May 21 from 5.42 basis points a month ago, according to CMA DataVision prices. The difference jumped to a one-year high of 10.57 on May 7, from as low as 3.1 in 2007.
…
Global corporate bond sales are poised for the worst month in a decade, with companies issuing $48.4 billion of debt this month, down from $183 billion in April, according to data compiled by Bloomberg.

Undeterred by the political and market reaction to the partial short-sale ban, Germany is pressing ahead with a complete ban on short-sales:

Germany’s Finance Ministry proposed legislation extending a partial ban on naked short selling adopted last week to all German stocks and certain euro-currency derivatives.

The plan would ban naked short selling in stocks of all German companies listed on a domestic exchange and would also outlaw naked credit-default swaps on some euro-region bonds as well as certain euro currency derivatives, the ministry said in what it termed a “discussion paper,” distributed to banks and industry groups.

“The financial crisis has curbed confidence in the financial markets and has revealed the need for further substantial improvement of oversight rules,” according to the document. “The crisis has reached a new dimension with turbulence increasing on the European Union member countries’ bond markets and the volatility of the euro.”

They’d be better off if they paid attention to their own rules and committments:

With Greece’s debt crisis now exposing the weakness of fiscal oversight in the 16-nation economy, governments missed one or both of the European Union’s two budget requirements 57 percent of the time since they adopted the euro. Those rules limit debt to 60 percent of gross domestic product and budget deficits to 3 percent of GDP, as set out in the 1997 Stability and Growth Pact.
…
Of the economies that have been in the euro since it started trading in 1999, Belgium and Italy missed one or both of the targets in all 11 years. Greece failed in all nine years in which it used the euro. Finland and Luxembourg satisfied both goals every year.

There is an increasing amount of retail option trading:

Volume in the U.S. has tripled since 2004 to a record 3.61 billion contracts in 2009, while trading by individual investors in the same period has increased fivefold at Fidelity Investments, the world’s largest mutual-fund firm. Sophisticated online software and the growth in training offered by industry groups and brokerages, such as Charles Schwab Corp. and TD Ameritrade Holding Corp., are enabling individuals to execute advanced techniques on home computers that had been the province of professionals.
…
The number of contracts traded at Schwab, the largest independent brokerage by client assets, rose 9 percent in 2009 from 2008, according to Randy Frederick, the San Francisco-based company’s director of trading and derivatives. TD Ameritrade, based in Omaha, Nebraska, had a 3 percent growth rate in clients trading options from October 2009 to March 2010, according to spokeswoman Fran Del Valle.

But at least the ban is creating jobs!

Germany’s unilateral move to curb speculative trading of government bonds and some naked short selling last week forced lawyers to work long hours to interpret rules enacted with less than a day’s notice.

The nation’s financial regulator, BaFin, has been posting guidance about the rules online, while lawyers toiled over what countries the rules apply in, what constitutes a “naked” deal and whether the ban covers derivatives.

“The situation has been tough for all of us, lawyers and regulators alike,” said Jochen Kindermann, a capital markets lawyer at Simmons & Simmons in Frankfurt. “The step was dropped on us like a bomb and no one really had any time to prepare.”

Woes in Europe coule lead to a new bank crisis:

European leaders must now address debt sold by nations such as Greece and Spain to avoid a costlier bank bailout later, said JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon.

“If they don’t fix the problem now, they’re still going to have to fix it later by bailing out their banks,” Dimon said at the Japan Society’s annual awards dinner in New York last night. “If they have to bail out their banks, it will be far worse than making that sovereign debt good.”
…
“A lot of that sovereign debt is owned by European banks, so when these countries have problems, so will their banks,” Dimon said, answering a question from former Federal Reserve Chairman Paul Volcker, who is now an economic adviser to President Barack Obama.

Europe’s looming debt crisis shouldn’t come as a surprise, Dimon said, because European Union nations have failed to live up to promises to keep their deficits and outstanding debt within target levels.

I have crossed SEC Commissioner Luis A. Aguilar off my Christmas card list. He is using very inflammatory language:

The financial crisis and its enormous costs to society were the direct result of years of deregulation, and they have sounded the alarm for change. The perils of fragmented regulation may also be seen in the May 6th market break — the so-called “flash crash.” This market breakdown and the difficulty in determining how and why it occurred are yet further stark reminders of the dangers of weak oversight of our tightly interconnected financial markets.

“Direct result”? I haven’t seen any proof of that. “[D]ifficulty in determining” the cause of the flash crash? It’s been three weeks, buddy. Note, however, that I will agree that we might never know The Reason. Even as we may never know The Reason why Greek bonds are so cheap when all the politicians have already said everything’s OK.

It is clear that the public is clamoring for significant reform and expects Washington to deliver.(5) Against this backdrop of deregulation and confusion, it is apparent that Wall Street and Main Street are in a tug-of-war to see who wins the legislative debate. This struggle will continue as the House and Senate financial reform bills are reconciled in conference. Throughout this debate, the voices of Main Street investors have been few.

Setting up the debate as Main Street vs. Wall Street is a cheap rhetorical trick – not something I would expect to hear from an SEC Commissioner. His footnote justifying his word “clamoring” is a poll with the question “Do you support or oppose stricter federal regulations on the way [banks and other financial institutions] / [Wall Street firms] conduct their business?” Does he really consider such a poll to be justifiable as a driver of public policy? And I must say, I find it surprising that the public is clamouring for stricter regulation, while at the same time the “voices of Main Street investors have been few”. Which is it?

By contrast, the voices from Wall Street are active, well-organized, well-financed, and extremely well-connected. And they are quick to argue that one proposed reform or another would certainly lead to undesirable effects.6 They argue this even though their powers of foresight failed utterly to anticipate the severity of the financial crisis before they were swept up in it.

More cheap rhetoric. Note that he is claiming that the Credit Crunch proves the financial sector knows nothing about anything, despite the fact that regulators and central banks are heavily implicated.

As with penalties, I think that the SEC has been too often willing to compromise on remedial sanctions because they can be a sticking point in settlement negotiations. Defendants and respondents fight hardest against accepting these sanctions is because they are, in many ways, the most meaningful measures we have to protect investors.

So, Luis? All that means is: Stop Regulatory Extortion. Now. If you think somebody’s done wrong – don’t settle without an admission of guilt.

In the meantime, I consider it a disgrace that such a senior regulator be using such inflammatory language and indulging in such public advocacy. New directions, whatever they might be, are the responsibility of politicians to decide, advised in a judicious and neutral manner of what the effects – and unintended consequences – of proposed changes might be.

I am saddened to see that Queers against Israeli Apartheid has been excluded from the Pride parade:

Pride Toronto’s Board of Directors voted Friday to ban the term from all Pride-related events, Councillor Kyle Rae confirmed.

No one from Pride Toronto would comment Friday, although they said a news conference will be held Tuesday.

The group Queers Against Israeli Apartheid, which has marched in Toronto’s annual Pride parade for the past several years, has angered people who feel the name is discriminatory, anti-Semitic and anti-Israeli.

Discriminatory? Anti-Israeli? So what? Anti-Semitic? Those who feel that criticizing Israel – however wildly, inaccurately or vehemently – is equivalent to anti-Semitism have feelings that simply don’t matter. However, there’s a loop-hole:

“the Pride committee has voted to ban the use of the term Israeli apartheid at all Pride-related events.”

They’ll probably rename themselves “Queers against Israeli Genocide”, or something equally inflammatory.

The disgrace is that this has happened as the result of a bureacratic decision (on the part of city bureaucrats to threaten funding) – there has been no legislative, judicial or quasi-judicial involvement whatsoever. But then, city bureacrats are running amok, about to ban soda pop at arenas and community centers.

All this is going to backfire, the same way official disapproval of pornography fueled the growth of the Internet. You know why Harry Potter (and, to a lesser extent, Twilight) was such a sensational success? It’s because, after a steady diet of politically correct bilge, somebody sat down a wrote a story (and wrote it well, which is the hard part) with villains and conflict. Most kids, I am sure, embarked on the voyage with a suspicion that somewhere along the line Voldemort and Potter would discuss their differences, resolve them, hug and become best friends. And if they had, JK Rowling might well have done well – but not great.

Want to make community centres irrelevant? Simply make them irrelevant to people’s lives and ban soda.

On another day of relatively light volume, PerpetualDiscounts gained 10bp and FixedResets lost 6bp.

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	2.68 %	2.77 %	46,156	20.62	1	2.4390 %	2,063.4
FixedFloater	5.24 %	3.31 %	35,261	19.95	1	0.0000 %	3,054.0
Floater	2.18 %	2.52 %	101,132	20.96	3	-0.6421 %	2,226.9
OpRet	4.89 %	3.90 %	98,564	1.13	11	0.3093 %	2,307.7
SplitShare	6.43 %	1.61 %	113,640	0.08	2	0.1110 %	2,156.7
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	0.3093 %	2,110.2
Perpetual-Premium	5.54 %	4.79 %	23,008	15.77	1	0.0000 %	1,821.3
Perpetual-Discount	6.33 %	6.41 %	210,664	13.34	77	0.1046 %	1,690.0
FixedReset	5.49 %	4.28 %	457,044	3.66	45	-0.0629 %	2,147.7

Performance Highlights
Issue	Index	Change	Notes
GWO.PR.M	Perpetual-Discount	-1.88 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-25 Maturity Price : 22.78 Evaluated at bid price : 22.91 Bid-YTW : 6.48 %
TRI.PR.B	Floater	-1.30 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-25 Maturity Price : 22.45 Evaluated at bid price : 22.71 Bid-YTW : 1.71 %
BNS.PR.Y	FixedReset	-1.28 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-25 Maturity Price : 23.86 Evaluated at bid price : 23.90 Bid-YTW : 3.64 %
IGM.PR.B	Perpetual-Discount	-1.27 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-25 Maturity Price : 22.46 Evaluated at bid price : 22.57 Bid-YTW : 6.62 %
BAM.PR.R	FixedReset	1.01 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-25 Maturity Price : 23.08 Evaluated at bid price : 24.92 Bid-YTW : 4.86 %
PWF.PR.K	Perpetual-Discount	1.06 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-25 Maturity Price : 19.10 Evaluated at bid price : 19.10 Bid-YTW : 6.57 %
GWO.PR.I	Perpetual-Discount	1.15 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-25 Maturity Price : 17.59 Evaluated at bid price : 17.59 Bid-YTW : 6.52 %
IAG.PR.F	Perpetual-Discount	1.28 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-25 Maturity Price : 22.87 Evaluated at bid price : 23.00 Bid-YTW : 6.58 %
CM.PR.R	OpRet	2.00 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2010-06-24 Maturity Price : 25.45 Evaluated at bid price : 25.99 Bid-YTW : -16.00 %
BAM.PR.E	Ratchet	2.44 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-25 Maturity Price : 21.67 Evaluated at bid price : 21.00 Bid-YTW : 2.77 %

Volume Highlights
Issue	Index	Shares Traded	Notes
SLF.PR.G	FixedReset	452,345	New issue settled today. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-25 Maturity Price : 24.18 Evaluated at bid price : 24.22 Bid-YTW : 4.03 %
BMO.PR.P	FixedReset	113,615	Desjardins crossed 100,000 at 26.30. YTW SCENARIO Maturity Type : Call Maturity Date : 2015-03-27 Maturity Price : 25.00 Evaluated at bid price : 26.20 Bid-YTW : 4.28 %
RY.PR.X	FixedReset	105,972	RBC crossed 100,000 at 27.00. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-09-23 Maturity Price : 25.00 Evaluated at bid price : 26.91 Bid-YTW : 4.36 %
PWF.PR.D	OpRet	65,400	RBC crossed 31,700 at 25.66 and another 20,000 at 25.67. YTW SCENARIO Maturity Type : Call Maturity Date : 2010-11-30 Maturity Price : 25.40 Evaluated at bid price : 25.64 Bid-YTW : 3.96 %
RY.PR.A	Perpetual-Discount	39,389	Nesbitt crossed 17,000 at 18.67. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-25 Maturity Price : 18.60 Evaluated at bid price : 18.60 Bid-YTW : 6.03 %
CM.PR.H	Perpetual-Discount	37,362	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-25 Maturity Price : 18.79 Evaluated at bid price : 18.79 Bid-YTW : 6.47 %
There were 27 other index-included issues trading in excess of 10,000 shares.

Market Action

May 21, 2010

Gensler’s testimony regarding the May 6 Bungee Jump is available:

CME Globex has stop logic functionaility that protects against cascading stop orders – the domino effect of one stop order triggering others. Globex’s stop logic functionality pauses trading for five to ten secons – five seconds in the case of the E-Mini contract – when the trading engine recognizes that it has a series of resting stop orders that could lead to a cascade and move the market up or down beyond a specified amount. On May 6, the stop logic functionality occurred on two currency futures contracts and when the E-Mini contract hit bottom.
…
On May 6, trading volume was very high. Usually, high volume indicates high liquidity. On this day, however, high volume could have been a misleading indicator of liquidty to market participants and their pre-programmed algorithms. Higher trading volume, when it is associated with high price change, may not be a good indicator of liquidity because many orders could have been executed at falling prices. This particular high trading volume was accompanied by significant fluctuations in trading volume. Further, the daily trading activity did not result in a significant number of futures contracts held by market participants at the end of May 6. This implies many investors participated in the market intraday, but on balance few investors increased their positions by the close of trading.
…
The two other measures of liquidity we reviewed – the bid offer spread and the depth of the limit order book – suggest that liquidity was dislocated. When the CME’s stop logic functionality took effect on the E-Mini contract, the bid ask spread had widened significantly. This means the liquidity was lower and the transaction costs were higher.

Click for big

One of the top ten most active trading accounts by gross volume between 2:00pm and 3:00pm only entered orders to sell. That trader entered the market at around 2:32pm and finished trading at roughly 2:51pm. The trader sold just less than half of its contracts as the market went down and just more than half as the price level rose.

We understand that this particular market participant sought to hedge its stock portfolio in the futures market by selling a pre-determined amount of futures through an executing broker’s automated execution system. In this circumstance, we further understand that the trade was executed through an executing broker’s algorithm that was meant to limit market impact by limiting volume at an average of nine percent of the volume traded during the period.
…
From 2:30 pm to 3:00 pm, however, this market had 10 times higher volume than the average daily trading volume for the same intraday time period over the previous month, without the concurrent increase in liquidity. On May 6, it took about 21 minutes for the participant to execute their sell order. In markets with average volume, it would have taken significantly longer – perhaps hours.

The Canadian preferred share market had a day of low volume, especially when compared with levels of the past two months. Sell in May and pay and pay? PerpetualDiscounts were up 2bp and FixedResets gained 6bp.

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	2.75 %	2.89 %	47,963	20.50	1	-2.4274 %	2,014.3
FixedFloater	5.24 %	3.30 %	36,732	19.96	1	0.0000 %	3,054.0
Floater	2.17 %	2.52 %	102,479	20.97	3	-0.4384 %	2,241.3
OpRet	4.91 %	4.18 %	91,423	1.74	11	-0.0604 %	2,300.6
SplitShare	6.44 %	3.04 %	117,465	0.08	2	0.6479 %	2,154.3
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	-0.0604 %	2,103.7
Perpetual-Premium	5.54 %	4.78 %	23,879	15.78	1	0.0000 %	1,821.3
Perpetual-Discount	6.34 %	6.37 %	212,109	13.34	77	0.0212 %	1,688.3
FixedReset	5.51 %	4.26 %	469,615	3.56	44	0.0607 %	2,149.0

Performance Highlights
Issue	Index	Change	Notes
BAM.PR.E	Ratchet	-2.43 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-21 Maturity Price : 21.74 Evaluated at bid price : 20.50 Bid-YTW : 2.89 %
ELF.PR.G	Perpetual-Discount	-1.81 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-21 Maturity Price : 16.25 Evaluated at bid price : 16.25 Bid-YTW : 7.43 %
RY.PR.I	FixedReset	-1.11 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2014-03-26 Maturity Price : 25.00 Evaluated at bid price : 25.74 Bid-YTW : 4.14 %
CIU.PR.B	FixedReset	1.03 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2014-07-01 Maturity Price : 25.00 Evaluated at bid price : 27.50 Bid-YTW : 4.05 %
POW.PR.D	Perpetual-Discount	1.05 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-21 Maturity Price : 19.20 Evaluated at bid price : 19.20 Bid-YTW : 6.61 %
BNA.PR.D	SplitShare	1.17 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2010-06-20 Maturity Price : 26.00 Evaluated at bid price : 26.00 Bid-YTW : 3.04 %
CU.PR.B	Perpetual-Discount	1.31 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-21 Maturity Price : 23.70 Evaluated at bid price : 24.06 Bid-YTW : 6.25 %
PWF.PR.H	Perpetual-Discount	1.34 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-21 Maturity Price : 21.90 Evaluated at bid price : 21.90 Bid-YTW : 6.65 %

Volume Highlights
Issue	Index	Shares Traded	Notes
TD.PR.O	Perpetual-Discount	47,062	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-21 Maturity Price : 20.02 Evaluated at bid price : 20.02 Bid-YTW : 6.13 %
TD.PR.P	Perpetual-Discount	39,720	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-21 Maturity Price : 21.46 Evaluated at bid price : 21.46 Bid-YTW : 6.19 %
BNS.PR.O	Perpetual-Discount	27,800	Nesbitt crossed 25,000 at 23.16. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-21 Maturity Price : 22.99 Evaluated at bid price : 23.15 Bid-YTW : 6.11 %
RY.PR.N	FixedReset	27,536	TD crossed 25,000 at 26.95. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-03-26 Maturity Price : 25.00 Evaluated at bid price : 26.90 Bid-YTW : 4.09 %
RY.PR.A	Perpetual-Discount	24,255	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-21 Maturity Price : 18.60 Evaluated at bid price : 18.60 Bid-YTW : 6.02 %
NA.PR.N	FixedReset	19,750	National sold 17,000 to anonymous at 26.00. YTW SCENARIO Maturity Type : Call Maturity Date : 2013-09-14 Maturity Price : 25.00 Evaluated at bid price : 26.00 Bid-YTW : 4.07 %
There were 15 other index-included issues trading in excess of 10,000 shares.

Market Action

May 20, 2010

You know who the smartest people in the world are? Harvard grads are the smartest people in the world:

When Larry Estrada graduates from Harvard Business School next week, he’ll begin work at Goldman Sachs Group Inc. He’ll do so only after taking an oath.

Estrada, 30, joined about 150 fellow business school students and faculty worldwide to campaign for the acceptance of an MBA ethics pledge modeled on the Hippocratic Oath taken by doctors. The aim is to get as many as 6,000 graduates at 50 MBA programs to swear they won’t put personal ambitions before the interests of their employers or society.

See how smart they are? They know what’s in the best interests of society. I consider myself lucky if I know what’s in my own best interests – but then, I’m not smart enough to go to Harvard.

It is possible that the carried interest loophole in US tax law may be plugged – finally!:

Managers of investment partnerships typically are paid 2 percent of fund assets as an annual management fee and 20 percent of the profit earned for investors above certain levels. While the management fee is taxed as income, the share of profit, known as carried interest, is taxed at the lower capital-gains rate, currently 15 percent and slated to rise to 20 percent in 2011.

A summary of the still-unreleased legislation said it would allow carried interest that reflects return on invested capital to continue to be taxed at capital gains rates.

For other funds, “the bill would require investment fund managers to treat 75 percent of the remaining carried interest as ordinary income,” the summary said.

Common equities had a bad day:

The Standard & Poor’s 500 Index plunged 3.9 percent to 1,071.59 at 4 p.m. in New York, its biggest drop since April 2009. The Stoxx Europe 600 Index lost 2.2 percent and the S&P GSCI Index of commodities tumbled to the lowest since October. The losses accelerated even as the euro rallied as much as 1.5 percent to $1.2598 after earlier flirting with a four-year low. Ten-year Treasury yields sank to the lowest level of the year, down 15 basis points at 3.22 percent.

The Canadian preferred share market continued its slow slide on relatively (by recent standards) modest volume, with PerpetualDiscounts down 11bp and FixedResets losing 8bp.

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	2.68 %	2.77 %	46,626	20.64	1	0.0000 %	2,064.4
FixedFloater	5.24 %	3.30 %	38,207	19.96	1	-1.1905 %	3,054.0
Floater	2.16 %	2.50 %	103,121	21.02	3	0.1097 %	2,251.2
OpRet	4.90 %	3.87 %	92,045	1.74	11	-0.0426 %	2,302.0
SplitShare	6.48 %	6.43 %	118,104	3.58	2	-0.4227 %	2,140.5
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	-0.0426 %	2,105.0
Perpetual-Premium	5.54 %	4.78 %	24,165	15.79	1	0.0000 %	1,821.3
Perpetual-Discount	6.33 %	6.39 %	214,700	13.34	77	-0.1085 %	1,687.9
FixedReset	5.51 %	4.29 %	473,465	3.56	44	-0.0809 %	2,147.7

Performance Highlights
Issue	Index	Change	Notes
MFC.PR.E	FixedReset	-1.50 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2014-10-19 Maturity Price : 25.00 Evaluated at bid price : 25.66 Bid-YTW : 4.85 %
PWF.PR.H	Perpetual-Discount	-1.46 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-20 Maturity Price : 21.61 Evaluated at bid price : 21.61 Bid-YTW : 6.74 %
MFC.PR.C	Perpetual-Discount	-1.28 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-20 Maturity Price : 17.75 Evaluated at bid price : 17.75 Bid-YTW : 6.35 %
BAM.PR.G	FixedFloater	-1.19 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-20 Maturity Price : 25.00 Evaluated at bid price : 20.75 Bid-YTW : 3.30 %
W.PR.J	Perpetual-Discount	-1.13 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-20 Maturity Price : 21.07 Evaluated at bid price : 21.07 Bid-YTW : 6.75 %
PWF.PR.O	Perpetual-Discount	-1.10 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-20 Maturity Price : 22.39 Evaluated at bid price : 22.50 Bid-YTW : 6.52 %
MFC.PR.D	FixedReset	-1.04 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2014-07-19 Maturity Price : 25.00 Evaluated at bid price : 26.72 Bid-YTW : 4.69 %

Volume Highlights
Issue	Index	Shares Traded	Notes
TRP.PR.A	FixedReset	58,280	Nesbitt crossed two blocks of 20,000 shares each, at 25.24 and 25.19. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-20 Maturity Price : 25.13 Evaluated at bid price : 25.18 Bid-YTW : 4.55 %
SLF.PR.C	Perpetual-Discount	35,475	RBC crossed blocks of 10,000 and 14,000 at 17.35 each. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-20 Maturity Price : 17.36 Evaluated at bid price : 17.36 Bid-YTW : 6.53 %
BMO.PR.N	FixedReset	27,021	Desjardins crossed 24,600 at 27.25. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-03-27 Maturity Price : 25.00 Evaluated at bid price : 27.03 Bid-YTW : 4.19 %
TD.PR.O	Perpetual-Discount	25,720	Nesbitt crossed 11,000 at 20.10. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-20 Maturity Price : 20.15 Evaluated at bid price : 20.15 Bid-YTW : 6.09 %
CM.PR.H	Perpetual-Discount	24,870	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-20 Maturity Price : 18.85 Evaluated at bid price : 18.85 Bid-YTW : 6.44 %
SLF.PR.B	Perpetual-Discount	24,175	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-20 Maturity Price : 18.56 Evaluated at bid price : 18.56 Bid-YTW : 6.59 %
There were 28 other index-included issues trading in excess of 10,000 shares.

Market Action

May 19, 2010

May 18, 2010

One of the guys who ran Basis Yield Alpha Fund (mocked on PrefBlog on April 30 is haranguing the regulators for a crusade:

THE man who blew the whistle on Wall Street banking giant Goldman Sachs has urged Australia’s corporate watchdog to follow the lead of the US Securities and Exchange Commission in suing the investment bank for fraud.

David Mapley, a former non-executive director of the local Basis Yield Alpha Fund, said the Australian Securities & Investments Commission should closely examine the role of the investment bank’s local arm, Goldman Sachs JBWere, in marketing a mortgage-related investment product that ultimately led to the fund’s demise in August 2007.
…
He confirmed that he had approached the SEC with his concerns shortly after the decision was made to place the fund in liquidation.
…
“Myself and a colleague examined the trade and we had a strong belief that that the security was fraudulently concocted and then sold to us,” Mr Mapley said.

Maybe Mr. Mapley and his colleague should have examined the trade before plunking their clients’ money down!

BIS has released a working paper by Nikola Tarashev, Claudio Borio and Kostas Tsatsaronis titled Attributing systemic risk to individual institutions. Their conclusion supports PrefBlog’s notion of progressive capital surcharges on risk-weighted assets:

The analysis also suggests that, once risk characteristics have been controlled for, charges imposed on financial institutions would need to increase faster than their size.

but, I confess, I have not reviewed the paper in sufficient detail to determine whether the premises that lead to this conclusion are supportable.

OSFI’s Ted Price gave a speech at the Centre for Monetary and Financial Economics Conference at Carleton University titled Developments in Bank Supervision – a Canadian Perspective. Nothing new, just a reiteration of the party line. That’s one superiority of the US system of bank regulation, which is run by the Fed, which is run by a Board of Governors who are independently selected for the board by the regional banks. This means that there is not only a diversity of opinion at the table, it means that these guys’ speeches can be much more informative as they engage in public diplomacy, at least to some extent.

Quick! What’s more important – knowledge or political correctness?

“Some of Professor Katz’s controversial writings have become a distraction from the critical work of addressing the oil spill,” Stephanie Mueller, a spokeswoman for the Energy Department, said in an e-mail today. “Professor Katz will no longer be involved in the department’s efforts.”
…
While Katz’s early work focused on astrophysics, he now consults on a variety of physics puzzles, he said. Katz wrote articles on his personal website, including, “What Is Political Correctness,” “In Defense of Homophobia” and “Why Terrorism Is Important.”
…
He was fired from the panel this morning, he said. He declined to specify which articles triggered the dismissal.

Fed up with the spectacle of mere investors taking a view on economics, BaFin will introduce short-selling bans:

Germany’s BaFin financial-services regulator said that it will introduce a temporary ban on naked short-selling and naked credit-default swaps of euro-area government bonds starting at midnight.

The ban will also apply to naked short-selling in shares of 10 banks and insurers including Allianz SE and Deutsche Bank AG, BaFin said today in an e-mailed statement.

The markets instantly panicked:

Credit-default swaps soared as a move by German Chancellor Angela Merkel to ban speculation on European government bonds with the contracts sparked anxiety among investors about increasing government regulation
…
“The market sees an inadequate policy such as this as an act of desperation and a refusal to address the fundamental problems at hand,” said Brian Yelvington, head of fixed-income strategy at broker-dealer Knight Libertas LLC in Greenwich, Connecticut.

Prohibiting speculation in the contracts may cause trading in the market for swaps tied to Europe government bonds to freeze up, possibly increasing borrowing costs or limiting the flow of capital, said Tim Backshall, the chief strategist at Credit Derivatives Research LLC in Walnut Creek, California.

Same thing as I always think when reading about bloggers being jailed for “disrespecting the state” or “insulting the president” (or even just cutting funding to a parade because the word “Apartheid” makes the boo-hoo-hoo brigade feel uncomfortable; geez, I wish those morons would spend less time sucking up to foreign governments and more time trying to figure out how to license a souvlaki cart in less than three years), as often happens in the Mid-east: if you have to make criticism illegal, then maybe you simply have no better answer.

There’s more!

The proposal backed by finance ministers at the European Council calls for fund managers to be authorized by national governments. National authorities will also review the trading activities of funds and approve their internal risk-management practices.

The SEC & CFTC have rushed out a preliminary report on the bungee jump:

At this point, we are focusing on the following working hypotheses and findings–
…
(5)
the use of market orders, stop loss market orders and stop loss limit orders that, when coupled with sharp declines in prices, for both equity and futures markets, might have contributed to market instability and a temporary breakdown in orderly trading;
…
Stop Loss Market Orders. An additional hypothesis as to why some securities suffered more severe declines than the broader market on May 6 is that they were particularly affected by stop loss market orders. These orders have stop prices that, for sell orders, are lower than current prices. When the stop price is reached, such orders turn into market orders to sell. In fast-falling market conditions, stop loss market orders could potentially trigger a chain reaction of automated selling if they are in place in significant quantity for a particular stock. We are investigating whether such a chain reaction led to abnormally large declines for some stocks on May 6.

There was continued heavy volume today, as PerpetualDiscounts edged downwards another 2bp, while FixedResets continued to impress, gaining 21bp. The Floating Rate sector continued its recent slide, so there are conflicting signals being emitted!

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	2.68 %	2.77 %	46,774	20.64	1	-0.1900 %	2,064.4
FixedFloater	5.24 %	3.30 %	40,147	19.97	1	-1.6106 %	3,056.9
Floater	2.14 %	2.46 %	104,241	21.13	3	-0.0544 %	2,266.0
OpRet	4.90 %	3.88 %	94,200	1.75	11	-0.0426 %	2,302.4
SplitShare	6.36 %	6.30 %	119,205	3.52	2	0.3523 %	2,144.6
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	-0.0426 %	2,105.4
Perpetual-Premium	5.53 %	4.78 %	25,081	15.80	1	0.0000 %	1,823.5
Perpetual-Discount	6.33 %	6.38 %	215,849	13.33	77	-0.0174 %	1,689.4
FixedReset	5.51 %	4.26 %	493,756	3.57	44	0.2087 %	2,150.0

Performance Highlights
Issue	Index	Change	Notes
ELF.PR.G	Perpetual-Discount	-2.18 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-18 Maturity Price : 16.63 Evaluated at bid price : 16.63 Bid-YTW : 7.25 %
PWF.PR.H	Perpetual-Discount	-2.00 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-18 Maturity Price : 21.56 Evaluated at bid price : 21.56 Bid-YTW : 6.75 %
BAM.PR.G	FixedFloater	-1.61 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-18 Maturity Price : 25.00 Evaluated at bid price : 20.77 Bid-YTW : 3.30 %
W.PR.H	Perpetual-Discount	1.15 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-18 Maturity Price : 21.05 Evaluated at bid price : 21.05 Bid-YTW : 6.63 %
CM.PR.K	FixedReset	1.86 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2014-08-30 Maturity Price : 25.00 Evaluated at bid price : 26.23 Bid-YTW : 4.18 %
ELF.PR.F	Perpetual-Discount	1.93 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-18 Maturity Price : 19.01 Evaluated at bid price : 19.01 Bid-YTW : 7.08 %
PWF.PR.L	Perpetual-Discount	2.34 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-18 Maturity Price : 19.70 Evaluated at bid price : 19.70 Bid-YTW : 6.55 %

Volume Highlights
Issue	Index	Shares Traded	Notes
CM.PR.M	FixedReset	84,715	Desjardins crossed 38,900 at 27.21, then blocks of 22,000 and and 20,000 at 27.24. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-08-30 Maturity Price : 25.00 Evaluated at bid price : 27.25 Bid-YTW : 4.30 %
HSB.PR.E	FixedReset	55,734	TD bought 16,700 from RBC at 16,700 at 27.25, then crossed 15,700 at the same price. RBC crossed 20,100 at the same price again. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-07-30 Maturity Price : 25.00 Evaluated at bid price : 27.24 Bid-YTW : 4.54 %
RY.PR.L	FixedReset	41,277	Nesbitt crossed 16,000 at 26.30. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-03-26 Maturity Price : 25.00 Evaluated at bid price : 26.25 Bid-YTW : 4.16 %
BAM.PR.H	OpRet	32,706	TD crossed 15,000 at 25.35 and 12,300 at 25.36. YTW SCENARIO Maturity Type : Soft Maturity Maturity Date : 2012-03-30 Maturity Price : 25.00 Evaluated at bid price : 25.36 Bid-YTW : 5.38 %
MFC.PR.D	FixedReset	27,695	Desjardins crossed 10,100 at 27.00. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-07-19 Maturity Price : 25.00 Evaluated at bid price : 26.95 Bid-YTW : 4.44 %
BMO.PR.J	Perpetual-Discount	25,955	Desjardins crossed 15,000 at 18.63. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-18 Maturity Price : 18.62 Evaluated at bid price : 18.62 Bid-YTW : 6.08 %
There were 44 other index-included issues trading in excess of 10,000 shares.

Market Action

May 17, 2010

Government financial problems are all the dealers’ fault!

The state’s securities division sent letters today to 10 underwriters of municipal bonds, asking them to detail their trading of credit-default swaps linked to state and local government bonds they’ve underwritten in Massachusetts since 2003. Recipients have until May 28 to respond. The letter asked each bank to “identify the entity that purchased CDS from your firm for each Massachusetts state or municipal bond offering.”
…
The probe follows a similar inquiry in California, where Treasurer Bill Lockyer asked banks to say whether they bet against the state with credit-default swaps. The U.S. Securities and Exchange Commission is also exploring conflicts of interest for banks that sold municipal bonds and bet the securities would fail, the Wall Street Journal reported, citing people familiar with the matter who it didn’t name.

IIROC has released a a new version of the consolidated UMIR, with updated annotations.

Somehow, you just knew that Greek deficits are the banks’ fault, didn’t you?

Greece is considering taking legal action against U.S. investment banks that might have contributed to the country’s debt crisis, Prime Minister George Papandreou said.

“I wouldn’t rule out that this may be a recourse,” Papandreou said, in response to questions about the role of U.S. banks in the crisis, in an interview on CNN’s “Fareed Zakaria GPS.” The program, scheduled to air tomorrow, was taped on May 13. Neither Papandreou nor Zakaria mentioned any banks by name.
…
Papandreou said the decision on whether to go after U.S. banks will be made after a Greek parliamentary investigation into the cause of the crisis.

“Greece will look into the past and see how things went,” Papandreou said. “There are similar investigations going on in other countries and in the United States. This is where I think, yes, the financial sector, I hear the words fraud and lack of transparency. So yes, yes, there is great responsibility here.”

Pity he couldn’t think of anything suspicious! I suggest that his parliamentary investigation focus on Mr. Micawber’s Principle:

Annual income twenty pounds, annual expenditure nineteen nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

Meanwhile, European banks are having trouble raising funds:

Banks were locked out of the credit markets as the eurozone debt crisis escalated this month. A week after the European Union and International Monetary Fund’s €750bn ($935bn) bailout was announced, concerns remain.
The shockwaves from the debt woes in Europe mean that all but a few highly rated banks will find bond issuance tougher over the rest of the year, according to bankers.

Following a strong first quarter when European banks sold $243.5bn in bonds, so far this month they have sold bonds worth only $879m, according to data provider Dealogic.

Domestic banks in Greece, Portugal and Spain have been hit over the past six weeks by movements in spreads on their governments’ bonds. For example, credit default swap spreads on National Bank of Greece more than doubled between April 5 and May 6, climbing to a high of 890bp.

James Hamilton of Econbrowser passes on some fascinating observations on the European shadow economy:

Aruoba’s paper notes some interesting regularities in a data set of 118 different countries. One measure he looks at is the size of the underground economy in different countries. If you carry out your business in the underground economy, you will benefit by avoiding taxation, but you lose the legal and contract protection that you would have had if you’d instead been working in the formal sector. If only the first effect mattered, you’d expect to see countries with higher tax rates have a greater role for the informal sector. But Aruoba finds just the opposite– the bigger the informal sector, the lower tax receipts as a percent of formal-sector GDP. Aruoba attributes this to the fact that in countries with better legal institutions, the benefits of conducting business above board outweigh the taxation costs, and the governments can afford to raise more of their revenue through traditional taxation.

Mind you, banks are already being punished for Greece:

Royal Bank of Scotland Plc and Barclays Plc led financial firms punished by rising borrowing costs, British Bankers’ Association data show. The cost to hedge against losses on European bank bonds is 63 percent higher than a month earlier. Investment-grade corporate debt sales in the region plummeted 88 percent last week to $1.2 billion from the prior period, according to data compiled by Bloomberg.

The rate banks say they charge each other for three-month loans in dollars is the highest in nine months, even after a government-led rescue designed to prevent Greece from defaulting on its debt and a new financial crisis. The euro is trading at its weakest level versus the dollar since the aftermath of Lehman Brothers Holdings Inc.’s collapse, and stocks tumbled.
…
The three-month London interbank offered rate in dollars, or Libor, rose to 0.445 percent last week, the highest level since August, from 0.428 percent on May 7 and 0.252 at the end of February, according to the British Bankers’ Association.

This is why the Fed has restarted the dollar swap lines, as noted May 10.

A Bloomberg story illustrates one of the hazards of contingent capital: if it converts, there might be tears:

A JPMorgan Chase & Co. reverse- convertible note paying 64 percent annualized interest plunged in value on May 14, three days after being sold, showing the risks of these products usually bought by individual investors.

The structured notes offered 10.7 percent in interest payments over their two-month term and a return of principal, as long as shares of TiVo Inc. didn’t fall more than 25 percent, according to a prospectus. TiVo dropped 42 percent on May 14 after an adverse court ruling, triggering a provision that will leave investors holding the possibly depressed stock at maturity.

Banks including JPMorgan, Morgan Stanley and Barclays Plc sold $656 million of reverse convertibles in the U.S. last month, according to data compiled by Bloomberg. The securities, which combine features of bonds and stock options, are often sold to individuals who don’t understand the risks, said Jake Zamansky, a New York-based attorney who represents investors.

“It’s being sold as a bond, an income-generating product, and I don’t think it’s being explained to people that you can get stuck with the stock,” the securities lawyer at Zamansky & Associates said in a telephone interview on May 14. He has represented investors in lawsuits related to the products.

The Canadian preferred share market resumed its slide today, with PerpetualDiscounts down 17bp and FixedResets down 10bp, with a return to highly elevated volume. Equity markets were enlivened by the scheduling and subsequent cancellation of the end of the world.

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	2.68 %	2.76 %	46,273	20.65	1	-2.0930 %	2,068.4
FixedFloater	5.15 %	3.22 %	40,125	20.07	1	-0.4245 %	3,106.9
Floater	2.14 %	2.46 %	105,774	21.12	3	-0.0181 %	2,267.2
OpRet	4.90 %	3.84 %	93,612	1.01	11	0.1209 %	2,303.4
SplitShare	6.39 %	6.46 %	119,891	3.52	2	0.3314 %	2,137.1
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	0.1209 %	2,106.3
Perpetual-Premium	5.53 %	4.78 %	26,119	15.81	1	-0.0399 %	1,823.5
Perpetual-Discount	6.32 %	6.38 %	213,824	13.33	77	-0.1652 %	1,689.7
FixedReset	5.52 %	4.33 %	497,129	3.57	44	-0.0965 %	2,145.5

Performance Highlights
Issue	Index	Change	Notes
BAM.PR.E	Ratchet	-2.09 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-17 Maturity Price : 21.68 Evaluated at bid price : 21.05 Bid-YTW : 2.76 %
CM.PR.K	FixedReset	-1.53 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-17 Maturity Price : 23.45 Evaluated at bid price : 25.75 Bid-YTW : 4.66 %
IAG.PR.F	Perpetual-Discount	-1.52 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-17 Maturity Price : 22.59 Evaluated at bid price : 22.71 Bid-YTW : 6.65 %
IAG.PR.C	FixedReset	-1.45 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2014-01-30 Maturity Price : 25.00 Evaluated at bid price : 26.44 Bid-YTW : 4.74 %
IAG.PR.A	Perpetual-Discount	-1.45 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-17 Maturity Price : 17.69 Evaluated at bid price : 17.69 Bid-YTW : 6.62 %
CL.PR.B	Perpetual-Discount	-1.34 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-17 Maturity Price : 23.94 Evaluated at bid price : 24.22 Bid-YTW : 6.55 %
PWF.PR.L	Perpetual-Discount	-1.33 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-17 Maturity Price : 19.25 Evaluated at bid price : 19.25 Bid-YTW : 6.70 %
PWF.PR.F	Perpetual-Discount	-1.24 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-17 Maturity Price : 19.91 Evaluated at bid price : 19.91 Bid-YTW : 6.67 %
GWO.PR.I	Perpetual-Discount	-1.19 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-17 Maturity Price : 17.46 Evaluated at bid price : 17.46 Bid-YTW : 6.56 %
MFC.PR.E	FixedReset	1.13 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2014-10-19 Maturity Price : 25.00 Evaluated at bid price : 25.99 Bid-YTW : 4.52 %
ELF.PR.G	Perpetual-Discount	1.13 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-17 Maturity Price : 17.00 Evaluated at bid price : 17.00 Bid-YTW : 7.09 %

Volume Highlights
Issue	Index	Shares Traded	Notes
SLF.PR.D	Perpetual-Discount	82,218	RBC crossed blocks of 36,000 shares, 12,100 and 10,000, all at 17.35. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-17 Maturity Price : 17.30 Evaluated at bid price : 17.30 Bid-YTW : 6.55 %
TD.PR.K	FixedReset	53,100	RBC crossed 40,000 at 27.05. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-08-30 Maturity Price : 25.00 Evaluated at bid price : 27.06 Bid-YTW : 4.24 %
TRP.PR.B	FixedReset	51,300	RBC crossed blocks of 27,900 and 12,500 at 24.65. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-17 Maturity Price : 24.58 Evaluated at bid price : 24.63 Bid-YTW : 4.01 %
TD.PR.R	Perpetual-Discount	44,150	Nesbitt crossed 30.000 at 23.18. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-17 Maturity Price : 23.00 Evaluated at bid price : 23.16 Bid-YTW : 6.10 %
BMO.PR.M	FixedReset	43,935	Nesbitt crossed 30,000 at 25.75. YTW SCENARIO Maturity Type : Call Maturity Date : 2013-09-24 Maturity Price : 25.00 Evaluated at bid price : 25.75 Bid-YTW : 3.97 %
SLF.PR.C	Perpetual-Discount	38,441	RBC crossed 27,000 at 17.35. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-17 Maturity Price : 17.28 Evaluated at bid price : 17.28 Bid-YTW : 6.55 %
There were 49 other index-included issues trading in excess of 10,000 shares.

Market Action

May 14, 2010

Econbrowser‘s James Hamilton writes a good piece on Greece:

I suspect that the key fear has to do with the consequences of a default or restructuring of the debt itself. Willem Buiter estimates that French and German banks have &#8364 110 billion exposure to Greek debt, and total exposure to a potential domino effect could be huge. The WSJ today has further breakdowns, and Dow Jones reports that JP Morgan’s holdings of non-U.S. government bonds increased by $36.5 billion in 2009, while Citigroup’s increased by almost $40 B.
…
And, as was the case in the 2008 difficulties, one can either view this primarily as a liquidity problem, for which we simply need the central banks to step in boldly to arrest the jitters, or as a solvency problem, in which case the policy decision is how to allocate the unavoidable capital losses among bank owners, bank creditors, and the government so as to minimize collateral damage to innocent bystanders. The fundamentals facing Greece suggest there is an overwhelming solvency component to the current problems. And the policy response so far seems to be choosing to allocate 100% of losses to the European and U.S. taxpayers.

Chatter about the potential disintegration of the Euro is starting to be heard from respected sources:

“You have the great problem of a potential disintegration of the euro,” former Federal Reserve Chairman Paul Volcker, 82, said yesterday in London. “The essential element of discipline in economic policy and in fiscal policy that was hoped for” has “so far not been rewarded in some countries.”

That story, by the way, leads off with an anecdote about dairy products:

Romano Prodi recalls how he persuaded Germany to allow debt-swamped Italy into the euro: support our membership and we’ll buy your milk, he said.

When Prodi toured Germany’s agricultural heartland after becoming Italian leader in 1996, he pitched “a big milk pipeline from Bavaria,” pointing to a three-year, 40 percent plunge in the Italian lira that was hurting dairy sales.

See? That’s the source of the problem! Here in smug Canada, we know how to do it properly … charge single mums and their kids extortionate prices for dairy products, so quota owners may continue to enjoy a bucolic lifestyle.

Click for Big

OSFI’s Mark White gave a speech reviewing the P&C industry.

A little more detail has emerged regarding the futures sale suspected to be the proximate cause of last week’s bungee jump.

Comrade Peace Prize’s administration has made it clear that it regards Swap pricing to be a public utility and that the role of government is to ensure that incompetent portfolio managers may continue to earn a good living:

Removing the Derivatives Trading Requirement to Protect Wall Street Profits. Under the current bill, standard derivatives would have to be traded on exchanges or other electronic trading platforms. Expect amendments to eliminate this trading requirement. Why? Because not everyone likes transparency. Today, the big derivatives dealers make big profits by charging end-users extra spreads and hidden fees, and they don’t want that to change.

This administration has learned nothing from TRACE. As soon as you get transparency, liquidity disappears. An ultimately, you will create more bungee jumps. On a positive note, however, it appears that regulatory capture is becoming an issue, albeit in a different field:

Obama said the federal government also shares some of the blame [for the Gulf of Mexico underwater oil blowout]. He faulted the Minerals Management Service for having too close a relationship with the industry it regulates. BP got an exclusion from a National Environmental Policy Act review by the agency for its damaged well in the Gulf.

“It seems as if permits were too often issued based on little more than assurances of safety from the oil companies,” Obama said. “That cannot and will not happen anymore.”

He ordered Interior Secretary Ken Salazar to “conduct a top-to-bottom reform” of the agency, including a review of its procedures for assessing the environmental impact of an offshore drilling plans.

Salazar said in a statement that will be “an important part of the ongoing comprehensive and thorough investigation of this incident.”

Obama previously announced plans to split the service’s responsibilities, which now include both enforcing rig safety rules and joining with companies such as BP and Exxon Mobil Corp. to develop oil and gas reserves while collecting royalties.

Volume on the Canadian preferred share market was way down today, reaching normal levels, as PerpetualDiscounts gained 4bp and FixedResets lost 8bp.

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	2.62 %	2.77 %	42,832	20.86	1	0.0000 %	2,112.6
FixedFloater	5.13 %	3.19 %	40,557	20.11	1	-0.1413 %	3,120.2
Floater	2.14 %	2.46 %	105,392	21.13	3	-1.2710 %	2,267.6
OpRet	4.91 %	4.15 %	94,607	1.76	11	-0.1349 %	2,300.6
SplitShare	6.41 %	6.40 %	120,294	3.53	2	0.4661 %	2,130.0
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	-0.1349 %	2,103.7
Perpetual-Premium	5.53 %	4.77 %	24,187	15.82	1	0.0000 %	1,824.2
Perpetual-Discount	6.31 %	6.38 %	212,539	13.36	77	0.0360 %	1,692.5
FixedReset	5.51 %	4.27 %	513,929	3.58	44	-0.0775 %	2,147.6

Performance Highlights
Issue	Index	Change	Notes
BAM.PR.K	Floater	-2.42 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-14 Maturity Price : 16.10 Evaluated at bid price : 16.10 Bid-YTW : 2.46 %
MFC.PR.E	FixedReset	-2.13 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2014-10-19 Maturity Price : 25.00 Evaluated at bid price : 25.70 Bid-YTW : 5.15 %
BAM.PR.B	Floater	-1.66 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-14 Maturity Price : 16.04 Evaluated at bid price : 16.04 Bid-YTW : 2.47 %
MFC.PR.D	FixedReset	-1.43 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2014-07-19 Maturity Price : 25.00 Evaluated at bid price : 26.80 Bid-YTW : 5.01 %
ELF.PR.F	Perpetual-Discount	-1.33 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-14 Maturity Price : 18.50 Evaluated at bid price : 18.50 Bid-YTW : 7.27 %
MFC.PR.A	OpRet	-1.02 %	YTW SCENARIO Maturity Type : Soft Maturity Maturity Date : 2015-12-18 Maturity Price : 25.00 Evaluated at bid price : 25.24 Bid-YTW : 4.05 %
PWF.PR.K	Perpetual-Discount	1.06 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-14 Maturity Price : 19.00 Evaluated at bid price : 19.00 Bid-YTW : 6.59 %

Volume Highlights
Issue	Index	Shares Traded	Notes
SLF.PR.D	Perpetual-Discount	58,915	RBC crossed blocks of 17,000 and 15,000, both at 17.35. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-14 Maturity Price : 17.33 Evaluated at bid price : 17.33 Bid-YTW : 6.53 %
BNS.PR.Y	FixedReset	39,150	Desjardins crossed 24,000 at 24.16. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-14 Maturity Price : 23.96 Evaluated at bid price : 24.00 Bid-YTW : 3.83 %
BNS.PR.K	Perpetual-Discount	19,480	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-14 Maturity Price : 19.61 Evaluated at bid price : 19.61 Bid-YTW : 6.19 %
BAM.PR.B	Floater	19,345	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-14 Maturity Price : 16.04 Evaluated at bid price : 16.04 Bid-YTW : 2.47 %
TRP.PR.A	FixedReset	18,646	YTW SCENARIO Maturity Type : Call Maturity Date : 2015-01-30 Maturity Price : 25.00 Evaluated at bid price : 25.31 Bid-YTW : 4.45 %
TRP.PR.B	FixedReset	18,495	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-14 Maturity Price : 24.58 Evaluated at bid price : 24.63 Bid-YTW : 4.01 %
There were 27 other index-included issues trading in excess of 10,000 shares.

Market Action

May 13, 2010

Credit ratings may be politicized:

The Senate in a 64-35 vote today approved an amendment to the financial overhaul legislation that would create a ratings board overseen by the Securities and Exchange Commission. The panel would assign a credit-rating company to rank an offering.
…
Under Franken’s amendment, the SEC would determine the size of the board. The majority of members would be investors, at least one member would be from a credit-rating company and at least one member would be from an investment bank.

The board would conduct an annual assessment of each credit-rating company to scrutinize the firm’s accuracy in grading debt compared with competitors, according to the amendment. While credit-rating companies would set fees, the SEC would have authority to make sure payments are “reasonable.”

For the proposal to form a credit-rating board to become binding, lawmakers would have to approve the broader financial reform measure and President Barack Obama would have to sign the legislation.

Not quite as bad as the EU’s plan to create a government-run agency that won’t be so mean to poor old Greece, but close!

The Canadian preferred share market was quieter today, with PerpetualDiscounts gaining 4bp and FixedResets losing 1bp. Volume was down to levels only slightly above normal – whatever normal means! – but the day was enlivened by the announcement of a Sun Life Financial FixedReset, 4.35%+141, to settle May 25.

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	2.62 %	2.77 %	44,471	20.87	1	0.0000 %	2,112.6
FixedFloater	5.12 %	3.18 %	40,563	20.12	1	-0.5621 %	3,124.6
Floater	2.11 %	2.40 %	102,084	21.30	3	-0.3568 %	2,296.8
OpRet	4.90 %	3.85 %	90,744	1.76	11	0.3170 %	2,303.7
SplitShare	6.44 %	6.44 %	124,665	3.53	2	0.3341 %	2,120.1
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	0.3170 %	2,106.6
Perpetual-Premium	5.53 %	4.77 %	24,342	15.82	1	0.0000 %	1,824.2
Perpetual-Discount	6.32 %	6.39 %	213,425	13.34	77	0.0370 %	1,691.9
FixedReset	5.51 %	4.30 %	516,152	3.58	44	-0.0112 %	2,149.2

Performance Highlights
Issue	Index	Change	Notes
HSB.PR.C	Perpetual-Discount	-1.71 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-13 Maturity Price : 19.51 Evaluated at bid price : 19.51 Bid-YTW : 6.65 %
PWF.PR.O	Perpetual-Discount	-1.10 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-13 Maturity Price : 22.39 Evaluated at bid price : 22.50 Bid-YTW : 6.51 %
ENB.PR.A	Perpetual-Discount	-1.08 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-13 Maturity Price : 23.49 Evaluated at bid price : 23.76 Bid-YTW : 5.79 %
HSB.PR.D	Perpetual-Discount	-1.03 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-13 Maturity Price : 19.30 Evaluated at bid price : 19.30 Bid-YTW : 6.59 %
TD.PR.M	OpRet	1.09 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2010-06-12 Maturity Price : 25.75 Evaluated at bid price : 25.88 Bid-YTW : 0.39 %
ELF.PR.F	Perpetual-Discount	1.19 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-13 Maturity Price : 18.75 Evaluated at bid price : 18.75 Bid-YTW : 7.17 %
CIU.PR.A	Perpetual-Discount	2.18 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-13 Maturity Price : 18.75 Evaluated at bid price : 18.75 Bid-YTW : 6.16 %

Volume Highlights
Issue	Index	Shares Traded	Notes
PWF.PR.M	FixedReset	140,000	RBC crossed blocks of 25,000 shares, 24,500 and 50,000, all at 26.50. Nesbitt crossed 25,000 at the same price and bought 10,000 from National at 26.45. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-03-02 Maturity Price : 25.00 Evaluated at bid price : 26.50 Bid-YTW : 4.36 %
TRP.PR.B	FixedReset	119,175	RBC crossed blocks of 25,000 shares, 40,000 and another 25,000, all at 24.65. RBC bought 13,000 from TD at the same price. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-13 Maturity Price : 24.71 Evaluated at bid price : 24.76 Bid-YTW : 4.09 %
PWF.PR.K	Perpetual-Discount	42,070	Desjardins sold 36,000 to anonymous at 19.10. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-13 Maturity Price : 18.80 Evaluated at bid price : 18.80 Bid-YTW : 6.66 %
BNS.PR.Y	FixedReset	41,280	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-13 Maturity Price : 24.01 Evaluated at bid price : 24.05 Bid-YTW : 3.93 %
BNS.PR.R	FixedReset	34,345	National crossed 25,000 at 25.49. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-02-25 Maturity Price : 25.00 Evaluated at bid price : 25.50 Bid-YTW : 4.48 %
CM.PR.H	Perpetual-Discount	33,043	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-13 Maturity Price : 18.85 Evaluated at bid price : 18.85 Bid-YTW : 6.43 %
There were 34 other index-included issues trading in excess of 10,000 shares.

Market Action

May 12, 2010

Worries regarding Greek debt are affecting Argentina:

Argentine bonds tumbled last week, with the yield on 7 percent dollar bonds due in 2015 soaring 2.36 percentage points in three days, amid concern that Greece’s financial crisis would spread across Europe. The debt rallied since European leaders unveiled an almost $1 trillion bailout plan, climbing for a third day today as yields fell 17 basis points, or 0.17 percentage point, to 12.55 percent.

[Economy Minister Amado] Boudou, in New York to meet with creditors ahead of tomorrow’s deadline for institutional investors to tender their defaulted bonds without penalty, said the government is convinced the proposal for restructuring $20 billion of defaulted debt held out of a 2005 settlement is “the last opportunity” for investors.
…
Argentina hasn’t tapped international credit markets since defaulting on $95 billion of debt in 2001.
…
Argentina’s offer included securities due in 2033 worth 33.7 cents on the dollar, warrants linked to gross domestic product and past due interest with the 2017 bonds. The government didn’t offer to include past-due payments on the GDP warrants, and said it was considering a concurrent sale of $1 billion in additional 2017 bonds as part of the exchange.

Argentina’s offer — as measured in net-present value terms — is worth about 45.5 cents on the dollar for institutional investors, according to RBS Securities Inc. debt strategist Siobhan Morden. The value of the 2005 exchange was 59.63 cents on the dollar, Credit Suisse Group AG said.

Investigators of the May 6 Bungee Jump have identified a candidate trigger point:

Regulators examining the causes of the brief stock market free fall last Thursday are looking closely at heavy selling in the market for stock-index futures by a single trader, beginning 10 minutes before stock prices began to plummet.

Gary Gensler, the chairman of the Commodity Futures Trading Commission, said at a Congressional hearing on Tuesday that during that crucial time period, the futures trader, whom he would not identify, accounted for about 9 percent of trading volume in the most actively traded stock-index derivative contract, known as the 500 e-mini futures contract.

All of the trader’s orders were to sell, Mr. Gensler said, while most of the other 250 traders who were active in the same market that day were both buying and selling securities.
…
The identity of the trader remained unclear. Terrence A. Duffy, executive chairman of the CME Group, which operates the Chicago exchange, said on Tuesday: “We obviously won’t divulge that market information. We are in contact with the folks that did the trade. There is no question that it is a bona fide hedger” and not someone intending to disrupt the markets.

There have been previous reports that the proximate cause was a $7.5-million options trade.

SEC Commissioner Luis Aguilar has released statement on fiduciary responsibility which aims to “clarify” earlier remarks (discussed on PrefBlog on April 30:

Currently, investors are receiving investment advice from broker-dealers who are not fiduciaries. This has serious and real consequences for investors who may not receive advice that is in their best interest. Moreover, investors may not be told that the broker-dealer registered representative sitting across from them may receive undisclosed compensation from the investment option he or she just recommended.

The big problem I have is his earlier insistence that institutional investors need the protection of a fiduciary relationship – which simply adds another layer to costs. Retail investors, as well, should be allowed to invest for themselves (if they’re not fiduciary to themselves, who is?) if they want to; or choose a fiduciary relationship.

I highlighted the savage effects of credible action in Greece on April 30. Moody’s is expecting credit effects to be severe:

Moody’s Investors Service lowered 22 billion euros ($28 billion) of Greek bonds backed by loans to consumers and companies as the country adopts austerity measures to qualify for European aid, leaving the notes under review for further downgrades.

The cuts “were prompted by Moody’s expectations of significant pool performance deterioration due to the stressed economic environment in Greece as well as increased operational risk due to the weakened financial strength of Greek banks,” the New York-based ratings company said today in a statement.

The securities, which are part of 23 transactions, included 10.7 billion euro of notes backed by residential mortgages, 3.9 billion euro of collateralized loan obligations, and an additional 7.2 billion euro of other asset-backed debt, according to the statement. The bonds appear less creditworthy considering “Greece’s austerity package and the resulting impact on the Greek economy and collateral performance,” Moody’s said.

Continued heavy volume today and, wonder of wonders, PerpetualDiscounts gained 11bp, while FixedResets gained 29bp. Volatility was high.

PerpetualDiscounts now yield 6.40%, equivalent to 8.96% interest at the standard equivalency factor of 1.4x. Long corporates now yield about 5.7%, so the pre-tax interest-equivalent spread is now about 325bp, a mild (and perhaps spurious) decline from the 330bp reported on May 5.

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	2.62 %	2.77 %	44,700	20.86	1	0.0000 %	2,112.6
FixedFloater	5.09 %	3.16 %	42,229	20.15	1	-1.7487 %	3,142.3
Floater	2.11 %	2.39 %	102,274	21.33	3	-1.4763 %	2,305.0
OpRet	4.92 %	4.02 %	91,863	2.88	11	0.1570 %	2,296.5
SplitShare	6.46 %	6.61 %	125,177	3.53	2	0.5599 %	2,113.1
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	0.1570 %	2,099.9
Perpetual-Premium	5.53 %	4.77 %	24,637	15.82	1	0.0000 %	1,824.2
Perpetual-Discount	6.32 %	6.40 %	218,567	13.31	77	0.1078 %	1,691.2
FixedReset	5.51 %	4.29 %	521,629	3.58	44	0.2910 %	2,149.5

Performance Highlights
Issue	Index	Change	Notes
BAM.PR.K	Floater	-2.53 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-12 Maturity Price : 16.57 Evaluated at bid price : 16.57 Bid-YTW : 2.39 %
BAM.PR.B	Floater	-2.43 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-12 Maturity Price : 16.44 Evaluated at bid price : 16.44 Bid-YTW : 2.41 %
BAM.PR.G	FixedFloater	-1.75 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-12 Maturity Price : 25.00 Evaluated at bid price : 21.35 Bid-YTW : 3.16 %
PWF.PR.L	Perpetual-Discount	-1.68 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-12 Maturity Price : 19.32 Evaluated at bid price : 19.32 Bid-YTW : 6.67 %
PWF.PR.K	Perpetual-Discount	-1.47 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-12 Maturity Price : 18.78 Evaluated at bid price : 18.78 Bid-YTW : 6.66 %
MFC.PR.C	Perpetual-Discount	-1.42 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-12 Maturity Price : 18.04 Evaluated at bid price : 18.04 Bid-YTW : 6.35 %
PWF.PR.F	Perpetual-Discount	-1.14 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-12 Maturity Price : 19.89 Evaluated at bid price : 19.89 Bid-YTW : 6.67 %
RY.PR.T	FixedReset	1.04 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2014-09-23 Maturity Price : 25.00 Evaluated at bid price : 27.13 Bid-YTW : 4.10 %
ELF.PR.G	Perpetual-Discount	1.08 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-12 Maturity Price : 16.80 Evaluated at bid price : 16.80 Bid-YTW : 7.17 %
PWF.PR.O	Perpetual-Discount	1.20 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-12 Maturity Price : 22.63 Evaluated at bid price : 22.75 Bid-YTW : 6.43 %
CL.PR.B	Perpetual-Discount	1.28 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-12 Maturity Price : 24.26 Evaluated at bid price : 24.57 Bid-YTW : 6.45 %
RY.PR.N	FixedReset	1.36 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2014-03-26 Maturity Price : 25.00 Evaluated at bid price : 26.91 Bid-YTW : 4.06 %
PWF.PR.I	Perpetual-Discount	1.40 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-12 Maturity Price : 22.93 Evaluated at bid price : 23.22 Bid-YTW : 6.51 %
IAG.PR.A	Perpetual-Discount	1.76 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-12 Maturity Price : 17.92 Evaluated at bid price : 17.92 Bid-YTW : 6.52 %
IAG.PR.F	Perpetual-Discount	2.44 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-12 Maturity Price : 22.91 Evaluated at bid price : 23.05 Bid-YTW : 6.54 %

Volume Highlights
Issue	Index	Shares Traded	Notes
PWF.PR.D	OpRet	238,038	TD crossed 33,500 at 25.71; RBC crossed 50,000 at the same price. Nesbit crossed 89,600 and RBC crossed 62,000, both at 25.71. YTW SCENARIO Maturity Type : Call Maturity Date : 2010-06-11 Maturity Price : 25.60 Evaluated at bid price : 25.70 Bid-YTW : 2.35 %
RY.PR.A	Perpetual-Discount	138,484	Nesbitt crossed blocks of 32,000 and 75,000 at 18.65. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-12 Maturity Price : 18.70 Evaluated at bid price : 18.70 Bid-YTW : 5.98 %
CM.PR.M	FixedReset	104,290	RBC crossed 25,000 and TD crossed 20,000, both at 27.10. TD crossed 50,000 at 27.20. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-08-30 Maturity Price : 25.00 Evaluated at bid price : 27.15 Bid-YTW : 4.38 %
GWL.PR.O	Perpetual-Premium	102,400	Nesbitt crossed 100,000 at 25.15. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-12 Maturity Price : 24.66 Evaluated at bid price : 25.09 Bid-YTW : 4.77 %
PWF.PR.J	OpRet	101,380	Nesbitt crossed 100,000 at 25.55. YTW SCENARIO Maturity Type : Call Maturity Date : 2011-05-30 Maturity Price : 25.25 Evaluated at bid price : 25.52 Bid-YTW : 3.78 %
TD.PR.E	FixedReset	84,545	Nesbitt crossed 75,000 at 27.00. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-05-30 Maturity Price : 25.00 Evaluated at bid price : 26.92 Bid-YTW : 4.30 %
There were 53 other index-included issues trading in excess of 10,000 shares.

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