Category: Market Action

The SEC announced today that it has learned nothing from Judge Jed Rakoff:

The SEC alleges that J.P. Morgan Securities and former managing directors Charles LeCroy and Douglas MacFaddin made more than $8 million in undisclosed payments to close friends of certain Jefferson County commissioners. The friends owned or worked at local broker-dealer firms that performed no known services on the transactions. In connection with the payments, the county commissioners voted to select J.P. Morgan Securities as managing underwriter of the bond offerings and its affiliated bank as swap provider for the transactions.
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J.P. Morgan Securities agreed to settle the SEC’s charges without admitting or denying the allegations by paying $50 million to the county for the purpose of assisting displaced county employees, residents and sewer rate payers; forfeiting more than $647 million in termination fees it claims the county owes under the swap transactions; and paying a $25 million penalty that will be placed in a Fair Fund to compensate harmed investors and the county in the municipal bond offerings and the swap transactions. LeCroy and MacFaddin have not agreed to settle the SEC’s charges.

It’s a disgrace – particularly since there has been at least one criminal conviction in connection with this matter. The practice of allowing firms to settle charges without admitting or denying guilt leads, at best, to a licence for wrongdoing. At worst, it leads to regulatory extortion, whereby a regulator will demand a settlement in exchange for dropping (or not starting) an investigation on some particular matter – possibly one not even related to the disclosed settlement terms.

Today’s FOMC statement was ‘steady as she goes’.

The CBO today estimated the cost of regulating derivatives:

Legislation to create stricter rules for derivatives that is making its way through Congress would cost the Securities and Exchange Commission $581 million for fiscal 2010-2014, and the Commodity Futures Trading Commission $291 million, the CBO said in an estimate dated yesterday. The CFTC would have to boost staffing 40 percent, or by 235 workers, while the SEC would need to expand by about 13 percent, or 450 employees, the CBO said.

There’s a nice little piece of empire-building!

The preferred share market was able to eke out some small gains today to keep the November streak alive; PerpetualDiscounts gained 3bp, while FixedResets managed to increase by about 8bp. Volatility was fairly low, with only eight issues in the performance highlights, and volume remained subdued.

PerpetualDiscounts now yield 5.97%, equivalent to 8.36% interest at the standard equivalency factor of 1.4x. Long corporates now yield … oh, call it 5.95%, so the pre-tax interest-equivalent spread (which I also refer to as the Seniority Spread) is about 240bp, a slight decline from the 245-250bp range estimated at month-end.

The first CIT bankruptcy hearing was today:

CIT won permission today to carve out an exception for Icahn from an order to that bars trading in its debt for the purpose of preserving as much as $7 billion in tax benefits. Icahn, CIT’s largest holder, could complicate the recognition of so-called net operating losses for taxes as he holds more than 5 percent of CIT’s debt. He is in the middle of a tender offer that could give him about 11 percent of the company’s stock upon its exit from bankruptcy, according to court documents.

The preferred share market had another strong day today, with PerpetualDiscounts up 38bp and FixedResets gaining 28bp. I wish I could be a more interesting commentator and claim that this was a clear reaction to the Lloyds Contingent Capital issue and the realization that the terms on new preferred share issues are probably going to become less investor-friendly over time … but I don’t believe the market is that sophisticated and I’m not an interesting commentator, so there!

Volume was muted again today.

James Hamilton of Econbrowser produced a great post, loaded with references to contingent capital discussions, with Improving financial regulation and supervision.

New issue concessions on US Municipals are widening:

U.S. state and local governments, which intend to sell almost $10 billion of bonds this week, face a market where dealers and traders’ reluctance to hold unsold debt is pushing borrowing costs higher than market yields.

Some new issues of municipal bonds have offered payouts as much as 20 basis points, or 0.2 percentage point, higher than the yields on similar securities trading among dealers and investors, George Friedlander, municipal strategist at Morgan Stanley Smith Barney in New York, said in an Oct. 30 report.

“There is a very substantial ‘new issue penalty,’” Friedlander said. “Issues are being priced to sell, as dealers and traders attempt to keep inventory down.”

I can only express relief that (some!) media commentary is getting back to normal: the problem is being expressed in terms of dealer reluctance to take on risk, rather than corrupt and ignorant issuers giving sweetheart deals to the sharpies on Wall Street. Which is not to say of course, that there’s never any jiggery-pokery

Dealbreaker continues its occasional – and highly out-of-character – series regarding odd corners of world financial markets with an interesting piece on precatorios, judicial claims against government entities:

In the 1990s, the claims piled up so high and fast that many government entities ended up with a major backlog of unpaid claims, which spawned even more court battles. The government decided to grasp the nettle and regularize the situation. In 2000, it created a new regime for precatorios. Precatorios would be transformed into a debt-like instrument, amortizing in equal installments over 10 years and paying interest linked to an inflation index. The precatorios were to be paid strictly in chronological order – that this needed to be spelled out is a bit of a strange concept given that an amortization schedule was established, but the Brazilians, having an admirable degree of self-knowledge, anticipated that even under the new regime payments might fall behind schedule. The point was that the government couldn’t pay some favored holders ahead of others. To the extent a holders faced delays in payment, he could move to “arrest” assets of the debtor government.

Cooperaters (CCS.PR.C & CCS.PR.D) announced 3Q09 earnings today:

For the third quarter, Co-operators General reported a consolidated net loss of $16.1 million, compared to net income of $22.2 million for the same quarter in 2008. Earnings (loss) per common share were ($1.01) for the third quarter compared to $1.05 for the same period last year. On a year-to-date basis, the net loss was $8.7 million (2008 – net income of $67.2 million) and earnings (loss) per common share were ($0.85) (2008 – $3.08)

“Our results were impacted by a large number of severe summer storms throughout the country, which contributed to additional claims and adjustment expenses in the third quarter compared to last year. The industry also continues to experience increasing costs related to accident benefit auto claims in Ontario,” said Kathy Bardswick, President and CEO of The Co-operators.
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Co-operators General’s capital position remains strong, as the Minimum Capital Test was 223% at September 30, 2009, well above the regulatory minimum requirement of 150%.

Their MCCSR ratio was also 223% at the end of 2Q09.

The preferred share market got the month off to a good start today, with PerpetualDiscounts gaining 28bp and FixedResets up 6bp. Volume was fairly light, with only one FixedReset making it on to the volume highlights table and only two blocks being reported.

The CIT saga continues:

CIT Group Inc., the 101-year-old commercial lender trying to avoid collapse, reached a deal with Goldman Sachs Group Inc. to reduce a $3 billion credit facility to $2.13 billion and keep the line open should CIT file for bankruptcy.

In exchange, Goldman Sachs received $285 million in termination fees, New York-based CIT said today in a filing with the U.S. Securities and Exchange Commission. Under the terms of the two companies’ original agreement, Goldman Sachs would have been due a $1 billion termination payment to close the credit line after a CIT bankruptcy.

CIT is attempting to cut its bills by asking creditors to exchange about $30 billion of debt for new securities. If the plan fails, the company may go bankrupt, which could erase most of the $2.3 billion stake held by U.S. taxpayers. CIT said in a statement today that the deadline for bondholders to vote on the plan passed last night and it is still counting ballots.

CIT has come to an agreement with Icahn, which suggests to me the restructuring has failed:

it has entered into an agreement with Carl Icahn to support its restructuring plan and secured an incremental $1 billion committed line of credit from Icahn Capital LP to provide supplemental liquidity for CIT as it pursues that plan.

This new line of credit may be drawn by the Company on or prior to December 31, 2009, subject to definitive documentation and other customary conditions, and may be drawn as debtor-in-possession financing in the event of bankruptcy. Together with CIT’s $4.5 billion expansion facility, announced on October 28, 2009, and other available sources of liquidity, the line of credit will further enhance CIT’s liquidity during the execution of its restructuring plan and ensure its ability to serve its existing small business and middle market customers.

The preferred share market closed a lousy month on a high note, with PerpetualDiscounts up 13bp and FixedResets up 11bp. Volume was light, which may be related to the banks’ year-ends today; the prop desks being less willing than usual to facilitate trading by taking positions.

PerpetualDiscounts closed yielding 6.04%, equivalent to 8.46% interest at the standard equivalency factor of 1.4x. Long Corporates continue to yield a hair under 6.0% – having returned +44bp for the month – and thus the pre-tax interest-equivalent spread is now in the 245-250bp range, indistinguishable from the 250bp reported on October 28.

The CIT restructuring continues to encourage speculation:

Since CIT Chief Executive Officer Jeffrey Peek started a $30 billion debt swap Oct. 1, the company’s notes due Nov. 3 have dropped 13 cents to 67 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. Holders of the $500 million in notes are being offered 90 cents on the dollar in new debt and equity in an out-of-court exchange. They would get 70 cents on the dollar in bonds and new stock in a pre-packaged bankruptcy.
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The CIT notes due Nov. 3 fell 2.5 cents to 67 cents on the dollar yesterday, Trace data show.

The cost to protect CIT debt against default for five years has risen 4.7 percentage points to 38.7 percent upfront since Sept. 30, according to CMA DataVision.

It was a mild day for the Canadian preferred share market, with PerpetualDiscounts gaining 1bp, while FixedResets gained 2bp. Volume was steady.

CIT amended terms on its exchange offer:

• Extension of the expiration date of the offers and the solicitation of acceptances of the Plan of Reorganization only with respect to offers made by CIT Group Funding Company of Delaware LLC (“Delaware Funding”) from October 29, 2009 to November 5, 2009. The Early Tender Date for these notes is October 29, 2009,
• Increased the interest rate payable on the Series B Notes from 9.0% per annum to 10.25% per annum.

… which sounds to me like the deal’s in trouble. They’ve also responded to Carl Icahn’s overtures (reported on PrefBlog on October 23) in a surprisingly mild-mannered way … but to no avail. Icahn’s stepping up the pressure:

Carl Icahn, who says he’s the largest bondholder of CIT Group Inc. with $2 billion of debt, stepped up his attacks on the lender’s restructuring plan as a deadline approaches tomorrow to avert collapse.

Icahn gave CIT an hour to respond late yesterday afternoon to his offer to provide $4.5 billion in financing, and threatened to sue the New York-based company if it chose a competing package from other bondholders. CIT said its plan to either exchange $30 billion of debt for new bonds and equity or file a pre-packaged bankruptcy is worth more to creditors.
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Icahn, 73, who built his reputation in the 1980s as a corporate raider, said yesterday the investments are worth more in a traditional bankruptcy than in a so-called pre-packaged workout. He is proposing to buy “smaller” holders’ bonds for 60 cents on the dollar in a tender offer lasting 30 days if they reject CIT’s plans, “assuring them a floor price in the event the notes trade lower,” he said yesterday in a statement.

Egan-Jones says the pre-pack should be voted down:

CIT Group Inc. bondholders should reject a proposed $30 billion debt swap and pre-packaged bankruptcy plan designed to avert the 101-year-old commercial lender’s collapse, according to Egan-Jones Ratings Co.

CIT’s unsecured debt is worth about 90 cents on the dollar and senior creditors can expect close to full recovery, Egan- Jones President Sean Egan and analysts Kent Hughes and Gale Gillespie wrote in a report dated today.

And today, the secured facility was increased:

it has expanded its current $3 billion senior secured credit facility by an additional $4.5 billion. The new $4.5 billion tranche, which is being provided by a diverse group of lenders, including many of the Company’s bondholders, will be secured by substantially the same assets as the existing $3 billion tranche and any additional collateral that becomes available as a result of the Company’s refinancing of certain existing secured credit facilities.
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The new $4.5 billion tranche matures in January 2012, and includes an option for the Company to extend all or a portion of the new tranche for an additional year. It is expected to close today and will be used to refinance a portion of the Company’s existing secured indebtedness, which may come due as a result of the restructuring, and for general corporate purposes.

The Company also addressed a commitment letter received yesterday from Carl Icahn to provide CIT a new $4.5 billion term loan. Although Mr. Icahn and his advisors had been in discussions with the Company for several days and were fully aware of CIT’s deadline, they provided the Company less than one hour to review and accept his commitment letter. Additionally, despite several requests from the Company for information and multiple deadline extensions, the Company has yet to receive a signed credit agreement and evidence of Mr. Icahn’s ability to fund the commitment.

As a result of the lack of evidence that Mr. Icahn has arranged sufficient funding at this time, CIT’s Board of Directors determined that the best interests of the Company and its stakeholders would be served by proceeding with the credit facility provided by a diverse group of lenders.

Norway has increased its policy rate:

Norges Bank raised its key interest rate a quarter point from a record low and signaled steeper increases than it previously forecast over the next three years as inflation accelerates and unemployment remains low.

The Oslo-based bank raised the overnight deposit rate to 1.5 percent, becoming the first European central bank to reverse its easing cycle since the credit crisis started to abate.
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The bank expects underlying inflation, which adjusts for energy and taxes, to average 2.75 percent this year and 1.75 percent in 2010. The mainland economy will shrink 1.25 percent this year and grow 2.75 percent in 2010, it estimates.

The key rate will average 1.75 percent this year and 2.25 percent in 2010, rising to an average 4.25 percent by 2012, the bank said.

The AIG bail-out is providing providing fodder for conspiracy theorists:

The Federal Reserve Bank of New York said Tuesday that it had no choice but to instruct American International Group last November to reimburse the full amount of what it owed to big banks on derivatives contracts, a move that ended months of effort by the insurance giant to negotiate lower payments.

Fed officials offered the explanation in a rare response to a media report after Bloomberg News said that the New York Fed, led at the time by then-President Timothy F. Geithner, directed AIG to make the payments after it received a massive government bailout. The officials said AIG lost its leverage in demanding a better deal once the company had been saved from bankruptcy.

Lawmakers and financial analysts critical of the payouts say it amounted to a back-door bailout for big banks.
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The precise cost to taxpayers of these decisions is difficult to determine. Bloomberg, quoting an industry source, reported Tuesday that AIG was aiming to pay just 40 percent of the $32.5 billion it owed to the banks. Using those figures, the report concluded that the government needlessly overpaid $13 billion.
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New York Fed officials explained that the main reason creditors were willing for a time to accept less than full reimbursement was their fear of an AIG bankruptcy. The government’s rescue of the company removed that threat and left the company with virtually no way to wrestle concessions from the banks.

Just because conspiracy theorists are nuts doesn’t mean they’re always wrong!

The SEC released today Testimony Concerning Dark Pools, Flash Orders, High Frequency Trading, and Other Market Structure Issues. Interesting, although ultimately unsatisfying: I remain perplexed regarding the badness of flash orders and high-frequency trading:

while flash orders may potentially be providing benefits to certain traders, it may no longer serve the interests of long-term investors or the markets as a whole. The Commission has stated, both in adopting Regulation NMS and in proposing to ban flash orders, that the interests of long-term investors should be upheld as against those of professional short-term traders, when those interests are in conflict. The comment period on the proposal to ban flash orders remains open until November 23, and the staff and the Commission look forward to carefully analyzing the comments received.

It was another putrid period of poorly performing preferreds today, with PerpetualDiscounts down 20bp and FixedResets losing 11bp. Volume was off a bit (prefhound was putting his orders through Pure today), but still healthy.

PerpetualDiscounts now yield 6.05%, equivalent to 8.47% interest at the standard equivalency factor of 1.4x. Long Corporates now yield a hair under 6.0%, so let’s call the Pre-Tax Interest-Equivalent Spread (also called the Seniority Spread, according to me) 250bp, with all levels indistinguishable from those reported on October 21.

It has been obvious for a while that a story like this would be coming … but it’s funny anyway:

Mr. Greenberg has been quietly building up a family of insurance companies that could compete with A.I.G. To fill the ranks of his venture, C.V. Starr & Company, he has been hiring some people he once employed.

Now, Mr. Greenberg may have received some unintended assistance from the United States Treasury. Just last week, the Treasury severely limited pay at A.I.G. and other companies that were bailed out by taxpayers. That may hasten the exodus of A.I.G.’s talent, sending more refugees into Mr. Greenberg’s arms, since C. V. Starr is free to pay whatever it wants.

“Basically, he’s just starting ‘A.I.G. Two’ and raiding people out of ‘A.I.G. One,’ ” said Douglas A. Love, an insurance executive who has also hired A.I.G. talent for his company, Investors Guaranty Fund of Pembroke, Bermuda.
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Treasury officials said their special master for pay, Kenneth R. Feinberg, was aware that if he set pay standards that were too stringent, he could further harm A.I.G. by driving away its executives. “We’re acutely aware of this possibility,” said Andrew Williams, a department spokesman. “That’s why Ken Feinberg spent hours at A.I.G. trying to understand that specific dynamic and strike the right balance.”

Hours. What dedication! What thoroughness!

Mark Carney has come up with a good illustration of the intellectual bankruptcy of many of the current regulatory efforts:

Financial institutions need to demonstrate an awareness of their broader responsibilities. Financiers should ask themselves every day how their activities affect systemic risk? and what are they doing to promote economic growth?

Oh, yeah? Who’s going to pay them to do this? Who’s going to give them a look at the books of their counterparties? Who’s going to give them power over their counterparties? This is just another cheap attempt to shield regulators from responisibility for the consequences of their actions.

And there may be consequences: Roubini thinks another bubble is forming:

Investors worldwide are borrowing dollars to buy assets including equities and commodities, fueling “huge” bubbles that may spark another financial crisis, said New York University professor Nouriel Roubini.

“We have the mother of all carry trades,” Roubini, who predicted the banking crisis that spurred more than $1.6 trillion of asset writedowns and credit losses at financial companies worldwide since 2007, said via satellite to a conference in Cape Town, South Africa. “Everybody’s playing the same game and this game is becoming dangerous.”

On the other hand, the new paradigm means that employer cartels can cloak themselves in holiness:

JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon said he won’t actively recruit the best employees from competitors operating under pay restrictions imposed after federal bailouts.

“I morally have an issue with people going against those companies that are hamstrung,” Dimon said today at the Securities Industry and Financial Markets Association meeting in New York. “It’s wrong to say, ‘Let’s go hire the best people.’ We’re not going to do that.”

It’s wrong to compete! It’s wrong to put the boots into your competitor when he’s down!

John Mackie has written an interesting piece about bond indentures, Bonds’ Bold Terms: Bonds Rule, With Banks Out

Despite all my efforts, there are still a few misguided souls out there who believe that Credit Rating Agencies should predict future economic conditions; some of these even believe that if they don’t do it better than the Fed, it must be because they are either corrupt or incompetent and probably both. DBRS has today released its overview of Canadian credit markets, with slides from presentations on structured finance and the outlook for 2010 and beyond. The forecasts have the usual quota of entertainment value; there are a few interesting charts:

Click for big

Back to normal for preferreds, with PerpetualDiscounts losing 14bp on the day and FixedResets down fractionally. Volume was normal – OK, maybe off a bit – but the volume highlights were dominated by straights.

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

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

Prior Fed policies are under continued attack:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

CIT has released a review of its restructuring plan threatening carnage if it does not pass. The PDF of the SEC filing is copy-protected, of course, because it’s SECRET, but they estimate recovery on unsecured claims – such as senior bonds – of between 5.9% and 37.2%. Ouch!

Carl Icahn estimates minimum 80% recovery if the firm is put into run-off; perhaps 100%.

In news guaranteed to amaze and astound, American financial institutions with severely restricted retention plans are having retention problems:

At Bank of America, for instance, only 14 of the 25 highly paid executives remained by the time Feinberg announced his decision. Under his plan, compensation for the most highly paid employees at the bank would be a maximum of $9.9 million. The bank had sought permission to pay as much as $21 million, according to Treasury Department documents.

At American International Group, only 13 people of the top 25 were still on hand for Feinberg’s decision.

Isn’t that incredible? Who would ever have thought that employees had choices, or that there was any point to retention bonuses beyond the fun of doing evil?

The preferred share market had a respite from the steady drip of declines today, with PerpetualDiscounts gaining 6bp and FixedResets up 11bp. Volume was steady.

A place to stand and a place to owe! Ontari-ari-ari-o was downgraded by DBRS to AA(low) from AA:

Based on the Q2 2009 update, the Province is now looking at a deficit of nearly $32 billion or 5.6% of GDP for this year on a DBRS-adjusted basis (including capital expenditures on a pay-as-you-go basis rather than as amortized), up 50% from the forecast available at the time of the budget. This also marks a notable deterioration from the Q1 2009 update released last June, which captured the effect of the auto sector bailout and rapidly declining tax revenues and led DBRS to change its trend on the long-term rating to Negative from Stable. The latest revisions are primarily the result of dampening tax collection due in part to the ongoing recession, and increased pressure on social program spending. Faced with a weaker-than-expected tax base, the Province has also trimmed its medium-term outlook, with DBRS-adjusted shortfalls of $27 billion to $30 billion now expected for the next two years, up from previous estimates of $17 billion to $21 billion.

Total debt as measured by DBRS is now projected to increase by 22% in 2009-2010 alone, and by 11% to 14% over the following two fiscal years. This will in turn boost Ontario’s debt-to-GDP-ratio from 29% at March 31, 2009, to approximately 37% by fiscal year-end, the third-highest level of all provinces, and to a peak as high as 43% by 2011-2012, well in excess of the level recorded at the onset of the early 1990s recession.

Thank you, Mike, Ernie & Dalton! Amidst all the partisan tumult in Queen’s Park, it is a pleasure to see all the cooperation you guys have exhibited in trashing the provincial finances. Fortunately, however, the Great Leap Forward will not be affected.

Another down-day for preferreds, with PerpetualDiscounts down 4bp and FixedResets down 17bp. Volume continue to be strong, with a preponderance of FixedResets in the volume highlights table.