Category: Market Action

The implicit guarantee of the GSE will – probably – shortly become explicit.

James Hamilton of Econbrowser reviews the situation and approves of the plan:

The first thing I like about this plan is the fact that the ultimate determination of the level of risks to be absorbed by the federal government is being left to Congress.
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The second thing I like about the plan is that such action by Congress would take the form of a dollar limit– here’s how much we’re willing to stake, and no more– with residual losses presumably laid on the GSE creditors.

Accrued Interest mourns bad decisions of the past:

its a sad day for free markets. I see the Treasury as between a rock and a Depression, and has selected the rock. I’d have done the same. I don’t blame Treasury so much as I lament that its come to this. Exactly who to blame for this or what could have been done differently in the past is a discussion for another time.

The WSJ Economics Blog collected some opinion from Street economists – mostly neutral and a bit bewildered, but with one interesting observation that it made shorting the stock a riskier proposition than otherwise. Jim Rogers and George Soros hate it. Naked Capitalism supplies further clippings.

From the Interesting Factoid department comes an estimate of Canadian banks’ exposure to the US:

BMO had the highest loan exposure at $51 billion, while TD’s exposure was estimated to be $46 billion. The two Canadian banks have focused their U.S. banking businesses on different regions – Chicago and the Midwest in the case of Bank of Montreal and the U.S. Northeast in the case of Toronto-Dominion.

Commercial loans to real estate and financial services companies made up about 43 per cent of the total amount at both banks.

[Blackmont Capital analyst Brad] Smith also noted that Royal Bank (TSX: RY.TO) only had a “modest exposure” worth $25 billion or 10 per cent of the outstanding loans, “surprisingly, given its well-established U.S. retail banking and global capital markets business.”

The least at risk were CIBC (TSX: CM.TO) and Scotiabank (TSX: BNS.TO), both with single-digit exposure.

He concludes … :

[TD & BMO] could see their earnings per share decline as much as seven per cent next year

Wow, earnings down as much as 7%, eh? Holy smokes! There’s a little perspective for you! Stockbrokers, I’m sorry to say, are busily attempting to convince clients that preferred dividends from banks in Canada are at risk. I’ll start paying attention when I hear a little less “could” and “might” and a few more numbers.

This market is getting surreal. PerpetualDiscounts are now yielding 6.49%, equivalent to 9.09% interest at a conversion factor of 1.4x. Long corporates continue to yield 6.1%, so the Pre-tax Interest-Equivalent spread is now just a hair under 300bp.

In the volume leaders, only two blocks were traded – both by CIBC and both 60,000 shares, so there’s even a possibility they’re related.

If I was seeing any confirmation in the bond market that the world was about to end, I’d be taking this a lot more seriously. I wouldn’t necessarily agree with the bond market’s analysis, understand, but I would have to consider predictions of impending doom with a sharper eye to detail. But we’re not seeing any of that. Volume is light and there are incredible moves happening on featherweights! PerpetualDiscounts were down over 1% today! That’s a bad MONTH!

There were fourteen other index-included $25-pv-equivalent issues trading over 10,000 shares today.

Panic, Chaos, Confusion! And then it got worse!

It looks like the US administration, quite properly, will ensure investors are wiped out before taking over Fannie & Freddie:

A government takeover of one or both companies is among several options that have been considered, Joshua Rosner, an analyst at Graham Fisher & Co., said after meetings with administration officials. U.S. Treasury Secretary Henry Paulson said today that federal regulators are backing Fannie Mae and Freddie Mac in “their current form.”

“The administration is considering all options in its contingency planning,” Rosner said. “That doesn’t mean to say that we’re at an inflection point where any decision is required immediately.”

The U.S. is reluctant to step in before Washington-based Fannie Mae and McLean, Virginia-based Freddie Mac, which own or guarantee about half the $12 trillion in home loans outstanding, exhaust their options for raising capital, according to Rosner and U.S. Representative Spencer Bachus of Alabama.

… but this will have very serious knock-on effects …

“It is impossible to contemplate all of the negative events that will occur if Fannie and Freddie go under,” said Richard Bove, an analyst at Ladenburg Thalmann & Co.

Fannie Mae fell $4.40 to $8.78 as of 11:21 a.m. after closing at the lowest level in 17 years yesterday. Freddie Mac slid $2.85 to $5.15.
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“Fannie and Freddie’s demise mean the investment banks can’t do any more securitization for a while, but their securitization revenue being zero has been written off from their share prices already,” said Brad Hintz, an analyst at Sanford C. Bernstein & Co.

There is considerable opposition to a bail-out:

Former U.S. Treasury Secretary John Snow said that Fannie Mae and Freddie Mac have relied on leverage to fund their businesses in the same fashion as a hedge fund, and that the government should avoid taking them over.

“Congress ought to be embarrassed” for years of delays in passing legislation aimed at strengthening regulation of the two companies, Snow, now chairman of New York-based buyout fund Cerberus Capital Management LP, said in a telephone interview. He said he flagged when in office that “the business model they were using was really the model of a hedge fund.”

The government-chartered companies, which grew to account for almost half of the $12 trillion in U.S. mortgages, were able to borrow at cheap rates because of an implicit federal guarantee, Snow said. His opposition to a full government takeover echoes the signal sent today by his successor, Treasury Secretary Henry Paulson.

Naked Capitalism has further clippings.

After the bell IndyMac was siezed by regulators:

IndyMac Bancorp Inc. became the second-biggest federally insured financial company to fail today after a run by depositors left the California mortgage lender short on cash.

The Federal Deposit Insurance Corp. will run a successor institution, IndyMac Federal Bank, starting next week, the Office of Thrift Supervision said in an e-mail today. Customers will have access to funds this weekend via automated teller machines.

The Pasadena, California-based bank specialized in so-called Alt-A mortgages, which didn’t require borrowers to provide documentation on their incomes. Its home state has been among the hardest hit by foreclosures.
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IndyMac becomes the largest OTS-regulated savings and loan to fail and second-biggest financial institution to close behind Continental Illinois in 1984, according to the FDIC.

The lender racked up almost $900 million in losses as home prices tumbled and foreclosures climbed to a record. California ranked second among U.S. states, with one foreclosure filing for every 192 households in June, 2.6 times the national average.

The Office of Thrift Supervision comments:

The immediate cause of the closing was a deposit run that began and continued after the public release of a June 26 letter to the OTS and the FDIC from Senator Charles Schumer of New York. The letter expressed concerns about IndyMac’s viability. In the following 11 business days, depositors withdrew more than $1.3 billion from their accounts.

“This institution failed today due to a liquidity crisis,” OTS Director John Reich said. “Although this institution was already in distress, I am troubled by any interference in the regulatory process.”

Schumer comments:

“If OTS had done its job as regulator and not let IndyMac’s poor and loose lending practices continue, we wouldn’t be where we are today,” Schumer, a New York Democrat, said in an e-mail today. “Instead of pointing false fingers of blame, OTS should start doing its job to prevent future IndyMacs.”

Naked Capitalism has other media clippings.

Credit woes? You know things are really getting out of hand when people need to be reassured about … :

U.S. debt is “well within” the guidelines for an Aaa rating, said Steven Hess, vice president and senior credit officer at Moody’s in New York. The U.S.’s AAA rating is not at risk, said Nikola Swann, S&P’s primary U.S. credit analyst.

Treasuries got crushed and Accrued Interest provides us with a little nugget about credit swaps:

credit default swaps on the United States of America moved 11bps wider today (from 9bps to 20bps).

Who’s the counterparty?

Accrued Interest comments on monoline re-structuring initiatives with the telling line:

In other words, bonds are trading as though there is a penalty for once carrying Ambac or MBIA insurance. While this would seem to present a buying opportunity, be sure you can handle the illiquidity. Many institutional municipal buyers don’t want to explain to their clients why they hold so much MBIA paper, so even at higher yields, bids can be hard to come by.

This is an unfortunate reality of the business. There are many who take great joy in pointing out that the average investment manager (by which they generally mean “stockbroker”, an entirely different thing) is average. Chasing rainbows, panicking … there are a great many investment managers (and many more stockbrokers) who simply reflect the greed and fear of their clients without adding any value of their own. But … if they don’t reflect the greed and fear of their clients, they’ll get fired and the next guy will reflect this greed and fear.

Investment pundits love a hard-nosed maverick who sticks to his guns, right or wrong … until the first time he’s wrong.

Things went blahooey today all right! Yet another ghastly day, with some extremely sloppy trading (great market making there, guys! Keep up the good work!), not terribly exciting volume and … none of the volume leaders had any block trades at all. Retail’s panicking, Institutional’s at the cottage … I get a little trading done now and then. Not much, but enough to be worthwhile.

There were sixteen other index-included $25-pv-equivalent issues trading over 10,000 shares today.

We may be nearing the point of crisis.

Accrued Interest is getting panicky:

Unfortunately, the panic is legitimate. No one knows what a GSE bailout will look like.
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There are also rumors that PIMCO and SAC were not trading with Lehman. Both PIMCO and SAC have denied the rumor. Worth noting that PIMCO was one of the first to stop trading with Bear Stearns.
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The more panicky things get, the more likely we get a relief rally after bank earnings are out. Odds are good that it will be a mixed bag, with some banks looking particularly ugly (Wachovia this morning warned of a huge loss) and others will be bad but not that bad.

What’s all this about? The GSEs are looking sick … very sick indeed:

Chances are increasing that the U.S. will bail out Fannie Mae and Freddie Mac because they don’t have enough capital to weather the worst housing slump since the Great Depression, former St. Louis Federal Reserve President William Poole said in an interview. Freddie Mac owed $5.2 billion more than its assets were worth in the first quarter, making it insolvent under fair value accounting rules. The fair value of Fannie Mae assets fell 66 percent to $12.2 billion, data provided by the Washington- based company show, and may be negative next quarter, Poole said.

“Congress ought to recognize that these firms are insolvent, that it is allowing these firms to continue to exist as bastions of privilege, financed by the taxpayer,” Poole, 71, who left the Fed in March, said in the interview yesterday.

There are soothing words from the administration:

U.S. Treasury Secretary Henry Paulson said he’s been assured by the regulator for Fannie Mae and Freddie Mac that the two government-chartered mortgage companies have enough capital.

The Office of Federal Housing Enterprise Oversight “has made clear that they are adequately capitalized,” Paulson told the House Financial Services Committee.

… but as of noon:

Freddie Mac (FRE US) sank 16 percent to $8.57, a 16-year low. UBS AG analysts cut their price target on the second-largest mortgage-finance company to $10 from $28, citing growing credit losses and problems raising capital.
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Fannie Mae slumped 5.2 percent to $14.52, the lowest since July 1991. MGIC Investment Corp. (MTG US), the largest U.S. mortgage insurer, lost 17 percent to $5.55.

… even while the implicit guarantee became a whole lot more explicit …

Fannie Mae and Freddie Mac, the largest buyers of U.S. home loans, are too big for the government to let them fail, leading Republican and Democratic lawmakers said.

The government-chartered companies, which own or guarantee about half the $12 trillion of U.S. mortgages, can count on a federal lifeline, said Republican Senator John McCain of Arizona and Democratic Senator Charles Schumer of New York.

The remarks by the presumptive Republican presidential candidate and the head of the congressional Joint Economic Committee followed a slide in the firms’ shares to the lowest level since 1991. They indicate Congress would push the administration to use government funds to prevent the companies failing and threatening a deeper housing recession.

Naked Capitalism reviews media stories on disaster planning

I said it most recently on May 2:

The GSEs have to start being regulated like banks; there’s no question in my mind about that.

If Congress wants to cut a special deal with them to achieve politically favourable goals, it should simply buy a preferred share – with cash – make it puttable to the company unless the company does A, B and C, and write a specific exclusion to the capital rules allowing this to be Tier 1 capital. Then … walk away and let the regular regulators do as they please.

Yet another thoroughly appalling day, with PerpetualDiscounts getting absolutely hammered. The average yield of 6.34% is equivalent to 8.88% interest (with a conversion factor of 1.4x), representing a spread of about 278bp over long corporates.

You know … I’m not worried about myself so much (I’m fairly phlegmatic about market prices), and I’m not worried about the fund so much (while it’s underperforming due to PerpetualDiscount exposure, it’s executing a steady stream of little income-enhancing trades that will eventually pay off), and I’m not worried about the market so much (all we have to fear is defaults, and none of those are even on the horizon, for instruments I hold. None of this excitement is showing up in the Canadian bond market at all.), but I am worried about retail. This is the type of environment where even very reasonable people might panic – or, worse, indulge in a little market timing – and these investors could hurt themselves badly.

There were eightteen other index-included $25-pv-equivalent issues trading over 10,000 shares today.

Times are tough! European banks are paying a spread of 542bp for Innovative Tier 1 Capital:

European banks are having to pay the highest costs in at least a decade to raise capital reserves required by regulators.

Investors now demand 542 basis points of extra yield over government debt to buy so-called Tier 1 securities, which regulators demand banks hold to buffer depositors and senior bondholders against losses, according to Merrill Lynch & Co.’s Euro Sub-Debt Tier 1 Index. The index started the year at 284 basis points.
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Regulators consider Tier 1 securities as close to equity because in some circumstances issuers can defer interest payments. Instead of a fixed due date, the bonds often give the issuer the option of redeeming them after five or 10 years and inflict higher interest payments if that doesn’t happen.

As financing costs increase banks may no longer view a higher coupon as penalizing them, meaning investors risk holding bonds that may never mature, said Simon Adamson, an analyst at debt research firm CreditSights Inc. in London.

I don’t know the details of the “Euro Sub-Debt Tier 1 Index”, but the spread probably relates to 10-year governments; the so-called bonds will (probably!) have a call and step-up provision at that time so the salesmen can pretend it’s 10-year money.

By way of comparison, we know from yesterday that PerpetualDiscounts are trading to yield 265bp over long corporates, and long corporates are trading about 200bp over Canadas. As a further comparison, the NBC CaPS II, 7.447% until the pretend-maturity 2020-6-30 (after which it’s BAs + 409bp), are quoted at 370bp over the Canada 2018s.

No prizes will be awarded for guessing which direction the market took today! This is getting awfully depressing, you know? But there’s no way of telling when this trend will reverse … and in the meantime, there are some awfully juicy swaps popping up often enough to make life interesting for a fully invested portfolio that isn’t afraid of trading.

The sloppiness of the market is well illustrated by the fact that the market did not appear to notice that National Bank went ex-Dividend today.

There were nineteen other index-included $25-pv-equivalent issues trading over 10,000 shares today.

Bradford & Bingley, a small UK mortgage bank with a market cap of about $400-million seems to be in trouble:

Bradford & Bingley dropped as much as 26 percent, the largest decline since it sold shares to the public in 2000, and was down 8 pence to 34 pence at 11:30 a.m. The shares fell 16 percent yesterday and 18 percent July 4, bringing this year’s decline to 88 percent and valuing the bank at 212 million pounds ($419 million).
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Bradford & Bingley has been hurt by the seizure in credit markets because it depends on capital markets for about 52 of its funding. Leicester, England-based Alliance & Leicester Plc, which gets about 59 percent from wholesale markets, declined as much as 10 percent today in London and traded at 226.25 pence at 11:20 a.m.

As a warning to those who might put too high an emphasis on the (very important) Tier 1 ratio and Total Capital ratio … as of Dec. 31/2007 they had GBP 1.4-billion in Tier 1 Capital, Tier 1 Ratio of 8.6%, Total Capital Ratio of 15.1%. You can’t put all your trust in one number!

Meanwhile, OFHEO says that, contrary to yesterday‘s speculation, Fannie & Freddie don’t need capital:

Freddie Mac and Fannie Mae, whose shares have tumbled more than 60 percent this year, have enough capital to survive a slump in the housing market and meet new accounting rules, their regulator said.
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“An accounting principle should not drive a capital decision by a regulator,” Lockhart later told reporters at a mortgage conference in Arlington, Virginia, today sponsored by the Federal Deposit Insurance Corp.

However, there’s lots of bad news to go ’round! IndyMac is looking fairly ill:

IndyMac Bancorp Inc., the California- based lender that is firing half its employees, is facing “elevated levels of deposit withdrawals” after U.S. Senator Charles Schumer said the bank may be on the brink of failure.
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Because it doesn’t have enough capital to meet the “well capitalized” threshold set by regulators, IndyMac said it can’t fund its lending with deposits acquired through independent brokers. IndyMac’s request for a waiver from the FDIC to allow for brokered deposits hasn’t been approved, the company said.

Naked Capitalism has more details.

Remember my table of CM issues on June 26? And the table of PWF issues yesterday, that Assiduous Reader prefhound noted was the last cum-dividend day? Well, here’s the table again, now that the dividend has gone ex:

I said it yesterday … I’ll say it again: Negative Convexity? Negative Schmonvexity! It just doesn’t make any sense!

I hate to say it … but it was yet another bad day for PerpetualDiscounts! This is the ninth consecutive loss; the last gaining day was June 24; the cumulative loss since then is 3.73%.

Long corporates still yield about 6.1% … the perpetualDiscount weighted mean pre-tax bid-YTW of 6.25% dividend is equivalent (with a 1.4x factor) to 8.75% … spread to long corporates is now 265bp.

There were twenty-two other index-included $25-pv-equivalent issues trading over 10,000 shares today.

VoxEU has put together a book comprised of selected columns about the sub-prime crisis.

The GSEs got whacked today, on reports that they may need to raise $75-billion:

Freddie Mac fell $2.59 to $11.91 after earlier dropping as low as $10.28. Fannie Mae declined $3.04 to $15.74 and earlier fell to $14.65.

The new FAS 140 rule that seeks to stop companies keeping assets in off-balance sheet entities may force Fannie Mae and Freddie Mac to bring mortgages back onto their books, requiring them to put up capital, Lehman analysts led by Bruce Harting wrote in a note to clients today.

Fannie Mae would need to add $46 billion of capital and Freddie Mac would need about $29 billion, the Lehman analysts wrote.

The companies will probably get an exemption from the rule because it would be “very difficult” for them to raise that amount of capital, the analysts said.
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“The provision discussed by Lehman could have an effect on our ability to serve the housing mission,” Freddie Mac spokeswoman Sharon McHale said. “We would hope FASB would take into account our mission” when it writes the final rule, McHale said.
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Yields on agency mortgage securities relative to U.S. Treasuries rose to the highest since March 13 on concern that banks may need to sell off the debt.

Bank of America Corp., the second-largest U.S. bank, may sell mortgage assets after buying Countrywide Financial Corp., Kenneth Hackel, the managing director of fixed-income strategy at RBS Greenwich Capital Markets in Greenwich, Connecticut, said in a note to clients.
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The difference between yields on the Bloomberg index for Fannie Mae’s current-coupon, 30-year fixed-rate mortgage bonds and 10-year government notes widened 7 basis points, to 204 basis points. The spread has climbed 18 basis points since June 18.

Note that Accrued Interest comments that he does not believe that the sell-off and Lehman’s analysis are related.

Remember my table of CM issues on June 26? Well, here’s a table of PWF issues, just to make sure you’re thoroughly confused.

Negative Convexity? Negative Schmonvexity! It just doesn’t make any sense!

Update: Assiduous Reader prefhound points out in the comments that PWF goes ex-dividend tomorrow … so be careful when comparing! … end update

The market got thumped again, on average volume with a notable paucity of block-trades. What can I say? It looks retail-driven … but it’s pretty depressing anyway. But with long corporates still hanging around 6.10% and PerpetualDiscounts now yielding 6.23% … tax-advantage? We don’t need no stinking tax advantage! But for those who do, AND who have an interest-equivalency factor of 1.4x, that’s +262bp. Wow.

There were nineteen other index-included $25-pv-equivalent issues trading over 10,000 shares today.

Maple bonds aren’t selling well this year:

Four banks outside Canada raised just C$500 million ($492 million) selling Maple bonds, or foreign debt denominated in Canadian dollars, according to Bloomberg data. That compares with C$20.6 billion from 55 issues in the first half of 2007.

“Investors are having a preference for well-known, well- understood companies, and they have a home-market bias,” said Chris Seip, head of Canadian debt capital markets at RBC Capital Markets in Toronto.
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By contrast, bond sales by Canadian governments rose 19 percent in the first half of the year, to C$40.5 billion. Corporate bond sales rose 1.4 percent to C$45.3 billion, according to Bloomberg data.

Speaking of “home market bias”, I suspect that FTU.PR.A (US Financial 15 Split) is ripe for another downgrade … it was downgraded to Pfd-3 when asset coverage was 1.4+:1 … asset coverage is just under 1.1:1 as of June 30.

My notes from yesterday attracted some comment on Financial Webring Forum:

To quote Preferred Share High Priest Hymas from his Prefblog of yesterday:
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Let’s see: 250bp over long corporates, 10-year high and short-lived…

Need I say more?

Let’s hope people don’t come to their senses too fast

Well, I like flattery as much as anybody else … but remember my feelings about market timing! I may think that this episode is overblown, I may be able to show it’s a ten-year high, I may think that in the past spikes such as the current episode have been short-lived … but I don’t know anything. Markets teach you to be humble and not to get too greedy! So … well, if you’ve been looking for an entry point, now seems to be a good time! But don’t over-allocate (my rule of thumb is a maximum of 50% of the fixed income portion of your portfolio can go into prefs), don’t get greedy and don’t mortgage the house.

And FWF participant has a very good idea:

I’ve also been trying to swap ‘weak pairs’ of perpetuals that I already owned before the slide to book those losses. I may as well make a positive out of a negative.

This is smart thinking. ‘Weak Pairs’ were discussed in an article I published last year. They can even be extremely weak pairs … that is, it’s also reasonable to do this with PerpetualDiscounts from the same issuer as long as the coupon isn’t all that much different … maybe I’m being too fussy, but the more similar the elements of a swap, the better it is for a retail investor who doesn’t trade very much and doesn’t want to spend a lot of time on analysis.

Look …. say you own one of the RY low coupon issues and you’re sitting on a capital loss. Swapping it into another RY low coupon issue and crystallizing that loss for tax purposes is good business, as long as you don’t give up yield after paying commission. In this market, you might even be able to pick up a few basis points, if you show some discipline and watch the market.

As long as the coupons aren’t too different, and the issuer is the same, overall investment characteristics of the issues will be almost identical and (when following this particular example and swapping RY issues) then you can take advantage of the fact that the ex-dates are identical and trade off current yield rather than YTM. Just make absolutely sure when you do this that ex-Dates are identical! Some issuers have different dates for different issues.

Anyway … the markets. I’ve got some good news, some bad news and then some good news.

The good news BCE issues rocketted today on the BCE announcement that financing has been arranged.

The bad news is that PerpetualDiscounts got hammered again.

The good news is that the markets will be closed for the weekend.

There were sixteen other index-included $25-pv-equivalent issues trading over 10,000 shares today.

The Penn National Gaming takeover has failed:

Penn National Gaming Inc. said Fortress Investment Group LLC and Centerbridge Partners LP scrapped their $6.1 billion plan to buy the racetrack and casino company as the credit markets collapsed.

Penn is the largest leveraged buyout agreement, including debt, to fall apart since J.C. Flowers & Co. backed out of an accord last year to purchase SLM Corp., also known as Sallie Mae, for $25.3 billion.
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Penn said it will receive $225 million to terminate the takeover and a $1.25 billion interest-free loan.

“This transaction represents the company’s best alternative to the uncertainty of litigation,” Penn said.

And today I received an eMail from a reader gazing with lust in his eyes at the BCE issues! Said it before, I’ll say it again: BCE prefs are a speculation on the success of the Teachers’ deal. They are only a fixed income investment by courtesy, at this point.

Further, I noted yesterday that the US TruPS market was being hit by a CDO buyers’ strike. This could also, indirectly, make financing the BCE LBO more difficult:

Defaults on leveraged-buyout loans may rise as firms struggle to refinance about $500 billion of debt used to fund the takeovers, the Bank for International Settlements said.

Companies bought by private-equity firms worldwide must repay the high-risk, high-yield loans and bonds by 2010, the Basel, Switzerland-based bank said in a report today, citing Fitch Ratings data. They may find it hard to raise the cash because of a slump in demand for collateralized debt obligations that pool the loans, BIS said.

Investors are shunning structured debt instruments such as CDOs, the main buyers of leveraged loans, after the credit-market seizure caused by the U.S. subprime mortgage collapse, the BIS said. The ability of LBO firms to refinance may be crimped further as banks tighten lending criteria after reporting $402 billion of credit losses and asset writedowns.

The BIS report, Private Equity and Leveraged Finance Markets, is available online.

BIS has also published a report on the rating of structured finance: Ratings in Structured Finance: What Went Wrong and What Can Be Done to Address Shortcomings? which has been briefly discussed on PrefBlog.

In news that is certain to inflame the Internuts, the Fed has announced:

The Federal Reserve said the portfolio of Bear Stearns Cos. assets it accepted as part of the firm’s takeover by JPMorgan Chase & Co. is now worth $28.9 billion, down from the $30 billion estimated in March.

The central bank cut the “fair value” of the assets by 3.7 percent as of June 26, the Fed said today in Washington. The Fed loaned $28.8 billion last week to a company it formed to purchase the investments, which as of mid-March included debt backed by mortgages and other items JPMorgan deemed too risky to take on.

The Fed gave the fair-value estimate of Maiden Lane LLC’s holdings as part of its weekly report on its balance sheet today.

Details are posted with the July 3 H.4.1 Release.

Yet another thoroughly appalling day in what has become (as far as I can tell) a self-feeding panic. Today’s pre-tax bid-YTW of 6.14% is equivalent to 8.60% interest (at a conversion factor of 1.4x), which is now 250bp over long corporates. And it’s not too hard to get that 6.14% average from a big-name bank, either!

On the bright side, that 250bp represents a 10-year high and the previous high was very short-lived. We shall see!

There were nineteen other index-included $25-pv-equivalent issues trading over 10,000 shares today.

Sorry folks! I didn’t get the indices rebalanced today, so you’ll have to make do with the price-change (hint: yuck!) and volume (hint: zzzzzz…) tables.

There were thirteen other index-included $25-pv-equivalent issues trading over 10,000 shares today.

Update, 2008-07-03:

BCE announced after the markets closed that it would skip its common dividend for the second quarter, following reports the bank/purchaser negotiations are “grinding” and deal might not close – if, in fact, it does close – until December. The ClearChannel story, by the way, continues:

Citigroup Inc. and Deutsche Bank AG are leading banks offering the debt to investors in the mid-80 cent range, down from 90 cents to 91 cents last week, said the people, who declined to be identified before the loans are sold.

The price cut reflects a decline in average actively traded loans. Prices fell to 89.9 cents on the dollar from 92.1 on June 19, the first time it dipped below 90 cents since April, according to data compiled by Standard & Poor’s LCD. The discounting indicates that a rally in loan prices in April and May has ended.

Another horrible day to end a horrible month. CPD is down about 4.26% on the month; MAPF is down between 6.25% and 6.50% – I will have precise figures tomorrow.

There were five other index-included $25-pv-equivalent issues trading over 10,000 shares today.