PrefBlog

TXPR closed at 619.18, up 1.53% on the day. Volume today was 781,400, second-lowest of the past 21 trading days.

CPD closed at 12.24, unchanged on the day. Volume was 125,610, third-highest of the past 21 trading days.

ZPR closed at 10.30 up 0.78% on the day. Volume of 142,060 was third-lowest of the past 21 trading days.

Five-year Canada yields were up a bit to 3.24% today.

TXPR closed at 609.84, down 0.70% on the day. Volume today was 2.58-million, third-highest of the past 21 trading days.

CPD closed at 12.24, down 0.08% on the day. Volume was 87,630, above the median of the past 21 trading days.

ZPR closed at 10.22 down 0.58% on the day. Volume of 211,150 was below the median of the past 21 trading days.

Five-year Canada yields were down sharply to 3.21% today; the volatility is amazing:

U.S. Treasury yields fell to their lowest levels in almost two weeks on Thursday, as data from the euro area stoked worries about a sharp slowdown in the global economy.

Euro zone business growth has slowed significantly this month – and by much more than expected – as consumers concerned about soaring bills opted to stay at home and defer purchases to save money, a survey showed on Thursday.

In London trade, the 10-year Treasury yield fell to 3.087 % , its lowest level in almost two weeks. It was down 6 bps on the day and followed sharp falls in bond yields across the euro area.
…
S&P Global’s flash euro zone Composite Purchasing Managers’ Index (PMI), seen as a good gauge of overall economic health, slumped to 51.9 in June from 54.8 in May, far below the 54.0 predicted in a Reuters poll.
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Since hitting its highest since 2011 early last week, the benchmark 10-year Treasury yield has tumbled around 40 bps, highlighting investor uncertainty in the wake of aggressive monetary tightening from the Federal Reserve

There’s a lot of weeping and wailing about how abnormally high interests rates are right now:

Rising rates could bake higher expenses into family finances for years. With a fixed-rate mortgage, you are locking in today’s higher payments in for whatever term you choose. From that perspective, the familiar old five-year fixed rate mortgage doesn’t look great.

Higher mortgage costs also make houses less affordable to buy, which is itself a retirement problem. In no way does a home guarantee a financially secure retirement. But if you do own one, you have a valuable asset to sell in order to free up money for retirement costs like care provided through in-home services or nursing homes.
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A return to normal inflation levels and an interest rate reversal would help avert this crisis, but we have a broader affordability problem to contend with in the form of lifestyle inflation.

I don’t get it. I don’t see anything abnormal at all about GOC-5 yields in the 3.00%-3.50% range when inflation is at 2% (or at least is projected to be there, according to the Canada Break-Even Inflation Rate). What I think is abnormal is fourteen years of ridiculously low yields, negative real yields, even negative NOMINAL yields, for heavens sake. Hell, it used to be that a negative yield on US Treasury Bills was breathlessly mentioned in textbooks as a gross aberation that only existed fleetingly due to special conditions in the Great Depression. And after reading this factoid, you checked it with a puzzled frown. Now, not so much.

TXPR closed at 614.13, down 0.80% on the day. Volume today was 2.06-million, well above the median of the past 21 trading days.

CPD closed at 12.25, down 1.05% on the day. Volume was 50,219, well below the median of the past 21 trading days.

ZPR closed at 10.28 down 0.77% on the day. Volume of 149,563 was below the median of the past 21 trading days.

Five-year Canada yields were up to 3.33% today.

Sorry that this is late: I had other things to do last night.

So, how about that Canadian inflation, eh?:

The consumer price index (CPI) rose 7.7 per cent in May from a year earlier, rising from April’s 6.8-per-cent pace, Statistics Canada said on Wednesday. It was the highest inflation rate since 1983 and part of a broader surge in prices that’s taken hold in advanced economies.

The recent jump in energy prices, stoked by the Russia-Ukraine war, is having a tangible effect on the numbers. Gasoline prices rose 12 per cent in May alone and were up 48 per cent from a year earlier; the national average price for regular unleaded remains north of $2 a litre.

So there’s another crypto company in trouble:

TSX-listed Voyager Digital Ltd.’s VOYG-T stock lost half its value in a single day after management warned of a potential default on a US$655-million loan to a troubled hedge fund, as investors continue to fear financial contagion owing to the crypto sector’s recent crash.

Voyager, which went public in Canada in 2019, was historically known for its trading venue that allows retail and institutional investors to buy and sell cryptocurrencies. Lately, however, the company has expanded its operations, and one of its newer divisions offers loans to institutional borrowers. At the end of March, Voyager had lent $2-billion worth of crypto assets, according to its quarterly filings.

On Wednesday, Voyager disclosed that it has lent US$655-million to Three Arrows Capital, a hedge fund known for trading cryptocurrencies, in the form of 15,250 bitcoin and US$350-million worth of USDC, another cryptocurrency.

According to their latest financials (SEDAR Voyager Digital Ltd. May 16 2022 07:30:45 ET Interim financial statements/report – EnglishPDF 606 K) they have loaned $2-billion in crypto while holding $227-million collateral. Sounds like the sooner these guys go bankrupt, the better.

Westjet’s unique take on planning has given me an idea for a new business:

On Wednesday, WestJet’s vice-president of government relations, Andrew Gibbons, said the airline is “disappointed” that the new rule unfairly makes it the “sole provider of reimbursement” for delays it cannot control. He said the airline relies on government agencies, NAV Canada, Canada Border Services Agency and Canadian Air Transport Security Authority (CATSA) to provide a seamless experience for travelers. These are the agencies that are understaffed and blamed for much of the delays at airports, particularly Toronto Pearson.

My idea is to offer valet parking at municipal lots downtown during sports events and other times of high demand; I figure I should be able to sell at least 5,000 tickets on busy days. Customers will not, of course, be refunded if I cannot actually park the cars due to the small number of such spots actually available; capacity is the government’s problem and I rely on them to provide a seamless experience for my customers.

PerpetualDiscounts now yield 6.14%, equivalent to 7.98% interest at the standard equivalency factor of 1.3x. Long corporates now yield 5.37%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has narrow sharply to 260bp from the 285bp reported June 15.

Oh, what a wicked world this is!

The Securities and Exchange Commission today charged Haverford, PA-based Egan-Jones Ratings Company, a nationally recognized statistical rating organization (NRSRO) registered with the Commission in certain ratings classes, with violating conflict of interest provisions. The SEC also charged the company’s founder and chief executive officer, Sean Egan, with causing certain of those violations.

The SEC’s order finds that, in 2019, Egan, who at the time headed Egan-Jones’s ratings group, became involved in business and marketing activities concerning a client and was influenced by sales and marketing considerations while participating in determining a credit rating for that client, which created a prohibited conflict of interest. The order finds that by issuing and maintaining a rating for the client under those circumstances, Egan-Jones violated the SEC’s NRSRO conflict of interest rules and, further, that Egan caused the company’s violations.

Egan-Jones is an investor-pay Credit Rating Agency; you know, those guys who are ever so much more ethical than the issuer-pay crowd.

Sorry this is so late!

TXPR closed at 617.13, down 1.74% on the day. Volume today was 1.51-million, slightly above the median of the past 21 trading days.

CPD closed at 12.26, down 2.16% on the day. Volume was 90,760, above the median of the past 21 trading days.

ZPR closed at 10.27 down 2.19% on the day. Volume of 227,820 was above the median of the past 21 trading days.

Five-year Canada yields were down to 3.33% today.

It was a bad day all ’round:

Canada’s main stock index slumped on Thursday to its lowest level in 14 months and its currency weakened as investors grew more worried that aggressive central bank interest rate hikes would trigger a recession, weighing on corporate earnings.

The Toronto Stock Exchange’s S&P/TSX composite index unofficially closed down 3.1%, or 607.50 points, at 19,004.06, its lowest level since April 2021.

The Canadian dollar was trading 0.3% lower at 1.2925 to the greenback, or 77.37 U.S. cents, after touching on Wednesday its weakest intraday level in more than one month at 1.2995.

U.S. stock indexes also tumbled on Thursday as the Swiss National Bank and the Bank of England lifted interest rates following the Federal Reserve’s 75-basis-point hike on Wednesday, with central banks aiming to slow domestic activity in the face of soaring price pressures.

The big news of the day was the FOMC meeting:

Overall economic activity appears to have picked up after edging down in the first quarter. Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures.

The invasion of Ukraine by Russia is causing tremendous human and economic hardship. The invasion and related events are creating additional upward pressure on inflation and are weighing on global economic activity. In addition, COVID-related lockdowns in China are likely to exacerbate supply chain disruptions. The Committee is highly attentive to inflation risks.

The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to raise the target range for the federal funds rate to 1‑1/2 to 1-3/4 percent and anticipates that ongoing increases in the target range will be appropriate. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in the Plans for Reducing the Size of the Federal Reserve’s Balance Sheet that were issued in May. The Committee is strongly committed to returning inflation to its 2 percent objective.

In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals. The Committee’s assessments will take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments.

Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michelle W. Bowman; Lael Brainard; James Bullard; Lisa D. Cook; Patrick Harker; Philip N. Jefferson; Loretta J. Mester; and Christopher J. Waller. Voting against this action was Esther L. George, who preferred at this meeting to raise the target range for the federal funds rate by 0.5 percentage point to 1-1/4 percent to 1-1/2 percent. Patrick Harker voted as an alternate member at this meeting.

But the big market mover, it appears, was the accompanying economic projections.

The Globe & Mail remarks:

Bond yields fell after the release of Fed projections on Wednesday that showed economic growth slowing to a below-trend rate of 1.7 per cent, and policymakers expecting to cut interest rates in 2024. Stocks on Wall Street ended the day higher.

Interest rate futures markets also reflected about an 85 per cent probability that the Fed will raise rates by 75 basis points at its next policy meeting in July. For September’s meeting, however, the greater probability – at more than 50 per cent – was for a 50-basis-point increase.

Meanwhile, in the frozen North:

Canadian home prices and sales dropped in May in a second straight month of declines, as a sharp jump in borrowing costs rattles the market and makes it harder for homebuyers to get a mortgage.

The national home price index, which adjusts for pricing volatility, fell 0.8 per cent to $822,900 on a seasonally adjusted basis, according to the Canadian Real Estate Association, or CREA, with more sizable price declines in what had been some of the country’s hottest markets — southern Ontario and Chilliwack B.C.

The number of home resales dropped by 8.6 per cent from April to May on a seasonally adjusted basis, bringing the level of activity back in line with pre-pandemic times, CREA said. Last month’s sales were down in three-quarters of the country, with the greatest declines in the major cities, including Toronto.

PerpetualDiscounts now yield 5.98%, equivalent to 7.77% interest at the standard equivalency factor of 1.3x. Long corporates now yield 4.94%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has widened sharply to 285bp from the 245bp reported June 8.