Goldman Sachs had an options whoopsy yesterday:
For all the efforts to shore up electronic markets in the aftermath of one of America’s biggest trading catastrophes, yesterday’s options malfunction by Goldman Sachs (GS) Group Inc. shows the dangers haven’t gone away.
A programming error caused the firm to send unintentional stock options orders in the first minutes of trading, pushing prices on dozens of contracts to a dollar each, according to a person briefed on the matter yesterday and data compiled by Bloomberg. Any losses for Goldman Sachs, the fifth-largest U.S. bank by assets, won’t be known until exchanges determine which contracts should be canceled, said the person, who requested anonymity because the information is private.
…
An internal system that Goldman Sachs uses to help prepare to meet market demand for equity options inadvertently produced orders with inaccurate price limits and sent them to exchanges yesterday, according to the person familiar with the situation. Some of the transactions have already been voided, data compiled by Bloomberg show.A “large number” of trades from the session’s first 17 minutes for tickers beginning with the letters H through L are being examined and most of the transactions may be canceled, according to a statement yesterday from NYSE Euronext (NYX)’s U.S. options business. NYSE and Nasdaq OMX Group Inc. said today that they have completed the trade reviews, according to e-mailed statements from the exchanges.
Cancelling trades is a good policy: it gives the regulators more power and therefore larger paycheques, while the big firms find it more important to hire ex-regulators to lobby their buddies. After all, the purpose of capital markets is to provide good jobs for regulators, right?
Here’s one good way to reflate the economy:
Chancellor of the Exchequer George Osborne’s plan to boost the U.K. housing market is winning his Conservative Party votes at the risk of creating a property bubble, economists say.
Help to Buy is designed to let cash-strapped buyers purchase a home with a deposit of as little as 5 percent of the value of the property. The first phase — interest-free loans for buyers of newly built homes — began in April and has already stoked the strongest housing market since the financial crisis. Guarantees meant to spur 130 billion pounds ($204 billion) of mortgage lending will be available for all homes starting in January.
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A home-value gauge compiled by the Royal Institution of Chartered Surveyors rose to the highest in almost seven years in July. Halifax, the mortgage unit of Lloyds Banking Group Plc, estimates values rose for a sixth month to an average 169,624 pounds. Mortgage lending rose 29 percent from a year earlier to the highest level since the collapse of Lehman Brothers Holdings Inc. in 2008, the Council of Mortgage Lenders said yesterday.Since Help to Buy began, 10,000 reservations for new homes have been made, according to figures published on the Department for Communities and Local Government website this month.
Rob Wood, an economist at Berenberg Bank and a former Bank of England official, forecasts house prices will rise 15 percent by the end of 2014.
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The program, announced in the March budget, is designed to help people who lack enough cash for a deposit, with the government lending 20 percent of the value of a newly built home up to 600,000 pounds, interest-free for five years. The lender provides 75 percent, meaning the purchaser has to raise a down payment of 5 percent compared with about 20 percent previously.The second phase, set to run for three years, will provide 12 billion pounds of government guarantee to encourage lenders to offer mortgages with loan-to-value ratios of up to 95 percent. The program applies to new and existing homes and excludes buyers of second properties.
The initiative, which follows the Funding for Lending Scheme run by the Bank of England, has drawn a warning from the International Monetary Fund for its potential to stoke home prices and been described as “moronic” by Societe Generale SA analyst Albert Edwards for encouraging Britons to add to already high debt levels. U.K. households owed about 1.3 trillion pounds on their mortgages in June, according to the Bank of England.
There are more liquidity problems in US Corporates:
The lowest volumes for U.S. corporate-bond trading since 2008 are underscoring the potential for market disruptions as regulations prompt dealers to retreat.
August trading volumes have plummeted to a daily average of $14.1 billion, down 9 percent from the corresponding period last year, even as the amount of company debt outstanding has soared by 12 percent. Bonds have lost 5 percent since the end of April on the Bank of America Merrill Lynch U.S. Corporate Index, the worst stretch since the credit crisis as the Federal Reserve considers curtailing its record stimulus.
Exiting from fixed-income securities is getting tougher as the world’s biggest bond dealers respond to new capital standards, reducing inventories of the debt by 76 percent since the peak in 2007. Even as lenders from Goldman Sachs Group Inc. to UBS AG create electronic-trading platforms, investors are failing to find relief from waning liquidity, according to a July report by the Treasury Borrowing Advisory Committee.
“You’ve got to be very wary of getting into a crowded position,” Stephen Antczak, the head of U.S. credit strategy at Citigroup Inc. in New York, said in a telephone interview. “If everybody has the same mandate, who’s going to take the other side of the trade? If far more guys are mark-to-market sensitive than they used to be and you overlay the lack of liquidity, that kind of exacerbates the problem.”
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The unprecedented growth of funds that publish market prices of their assets daily has changed the dynamic of credit markets, with investors more inclined to redeem funds as sentiment deteriorates, Antczak said. The funds now account for more than 40 percent of the debt’s owners from about 25 percent in 2007, Citigroup data show.
So you’ve got TRACE, you’ve got capital constraints … electronic trading platforms aren’t going to help any, they’re going to hurt: it’s well known that transparency creates smaller spreads, but a thinner, more brittle market … at some point, regulators are going to have to sit down and ask themselves what bond markets are for. Are they to allow borrowers to access lenders? Or are they to be ‘fair’, whatever that means? Because right now, the public corporate bond market is being destroyed.
Yield increases are spreading through the economy:
Mortgage rates are again on the rise in Canada, increasing the likelihood of a slowdown in the national housing market.
On Wednesday, Royal Bank of Canada hiked its five-year, fixed-rate mortgage by 20 basis points to 3.89 per cent, one day after the Bank of Montreal raised its benchmark rate to 3.79 per cent.
It was a very good day for the Canadian preferred share market, with PerpetualDiscounts winning 43bp, FixedResets gaining 26bp and DeemedRetractibles up 31bp. The Performance Highlights table is suitably lengthy, with FixedResets being notable at both ends of the spectrum. Volume was high.
So, everybody’s wondering – is this a dead cat bounce or the start of a major rally? I’m preparing a three month forecast … readers will understand that due to the complexity of the problem, I won’t have it ready for about 90 days.
PerpetualDiscounts now yield 5.91%, equivalent to 7.68% interest at the standard conversion factor of 1.3x. Long corporates now yield about 4.9%, so the pre-tax interest-equivalent spread (in this context, the Seniority Spread) is now about 280bp, another significant increase from the 270bp reported August 14.
HIMIPref™ Preferred Indices These values reflect the December 2008 revision of the HIMIPref™ Indices Values are provisional and are finalized monthly |
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Index | Mean Current Yield (at bid) |
Median YTW |
Median Average Trading Value |
Median Mod Dur (YTW) |
Issues | Day’s Perf. | Index Value |
Ratchet | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.4437 % | 2,609.7 |
FixedFloater | 4.25 % | 3.55 % | 33,637 | 18.25 | 1 | -0.3122 % | 3,906.6 |
Floater | 2.58 % | 2.93 % | 70,751 | 19.87 | 5 | 0.4437 % | 2,817.8 |
OpRet | 4.67 % | 4.35 % | 71,820 | 2.81 | 3 | 0.2473 % | 2,600.4 |
SplitShare | 4.76 % | 4.40 % | 56,010 | 3.86 | 6 | 0.3642 % | 2,937.2 |
Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.2473 % | 2,377.8 |
Perpetual-Premium | 5.83 % | 5.84 % | 104,946 | 13.95 | 12 | -0.1425 % | 2,223.1 |
Perpetual-Discount | 5.76 % | 5.91 % | 160,912 | 13.99 | 25 | 0.4386 % | 2,241.3 |
FixedReset | 5.07 % | 4.02 % | 243,245 | 4.17 | 84 | 0.2638 % | 2,410.8 |
Deemed-Retractible | 5.29 % | 5.38 % | 195,921 | 6.94 | 43 | 0.3146 % | 2,288.4 |
Performance Highlights | |||
Issue | Index | Change | Notes |
BAM.PR.T | FixedReset | -1.93 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-08-21 Maturity Price : 22.29 Evaluated at bid price : 22.86 Bid-YTW : 4.77 % |
CIU.PR.C | FixedReset | -1.91 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-08-21 Maturity Price : 21.81 Evaluated at bid price : 22.06 Bid-YTW : 3.85 % |
TD.PR.S | FixedReset | -1.89 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.90 Bid-YTW : 4.12 % |
ENB.PR.D | FixedReset | -1.64 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-08-21 Maturity Price : 21.76 Evaluated at bid price : 22.15 Bid-YTW : 4.81 % |
FTS.PR.J | Perpetual-Discount | -1.25 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-08-21 Maturity Price : 21.38 Evaluated at bid price : 21.38 Bid-YTW : 5.58 % |
HSB.PR.D | Deemed-Retractible | -1.13 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.46 Bid-YTW : 5.46 % |
ENB.PR.A | Perpetual-Premium | -1.11 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-08-21 Maturity Price : 23.85 Evaluated at bid price : 24.10 Bid-YTW : 5.72 % |
BAM.PR.N | Perpetual-Discount | 1.02 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-08-21 Maturity Price : 19.86 Evaluated at bid price : 19.86 Bid-YTW : 6.09 % |
BAM.PR.X | FixedReset | 1.03 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-08-21 Maturity Price : 22.08 Evaluated at bid price : 22.56 Bid-YTW : 4.40 % |
TRP.PR.D | FixedReset | 1.05 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-08-21 Maturity Price : 22.76 Evaluated at bid price : 24.05 Bid-YTW : 4.37 % |
PWF.PR.E | Perpetual-Discount | 1.08 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-08-21 Maturity Price : 23.15 Evaluated at bid price : 23.45 Bid-YTW : 5.91 % |
PWF.PR.L | Perpetual-Discount | 1.17 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-08-21 Maturity Price : 21.57 Evaluated at bid price : 21.57 Bid-YTW : 5.98 % |
GWO.PR.I | Deemed-Retractible | 1.32 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 20.70 Bid-YTW : 6.81 % |
BMO.PR.Q | FixedReset | 1.34 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.22 Bid-YTW : 3.87 % |
CU.PR.D | Perpetual-Discount | 1.35 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-08-21 Maturity Price : 21.50 Evaluated at bid price : 21.79 Bid-YTW : 5.63 % |
TRP.PR.B | FixedReset | 1.41 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-08-21 Maturity Price : 20.85 Evaluated at bid price : 20.85 Bid-YTW : 4.05 % |
GWO.PR.N | FixedReset | 1.58 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.84 Bid-YTW : 4.91 % |
PWF.PR.P | FixedReset | 1.79 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-08-21 Maturity Price : 22.69 Evaluated at bid price : 23.30 Bid-YTW : 3.93 % |
BNS.PR.Y | FixedReset | 1.82 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.90 Bid-YTW : 4.42 % |
CU.PR.E | Perpetual-Discount | 1.86 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-08-21 Maturity Price : 21.58 Evaluated at bid price : 21.90 Bid-YTW : 5.60 % |
PWF.PR.F | Perpetual-Discount | 1.90 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-08-21 Maturity Price : 22.31 Evaluated at bid price : 22.58 Bid-YTW : 5.86 % |
GWO.PR.H | Deemed-Retractible | 1.99 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.48 Bid-YTW : 6.76 % |
GWO.PR.Q | Deemed-Retractible | 2.16 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.65 Bid-YTW : 5.93 % |
ENB.PR.F | FixedReset | 2.58 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-08-21 Maturity Price : 22.34 Evaluated at bid price : 23.10 Bid-YTW : 4.69 % |
TRP.PR.A | FixedReset | 2.75 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-08-21 Maturity Price : 23.84 Evaluated at bid price : 24.25 Bid-YTW : 4.11 % |
SLF.PR.G | FixedReset | 2.97 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.20 Bid-YTW : 4.95 % |
MFC.PR.K | FixedReset | 2.97 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.89 Bid-YTW : 4.49 % |
Volume Highlights | |||
Issue | Index | Shares Traded |
Notes |
ENB.PR.Y | FixedReset | 79,086 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-08-21 Maturity Price : 21.95 Evaluated at bid price : 22.51 Bid-YTW : 4.70 % |
GWO.PR.H | Deemed-Retractible | 71,189 | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.48 Bid-YTW : 6.76 % |
CU.PR.G | Perpetual-Discount | 51,870 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-08-21 Maturity Price : 20.30 Evaluated at bid price : 20.30 Bid-YTW : 5.57 % |
GWO.PR.R | Deemed-Retractible | 46,300 | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.30 Bid-YTW : 6.26 % |
CM.PR.K | FixedReset | 36,543 | YTW SCENARIO Maturity Type : Call Maturity Date : 2014-07-31 Maturity Price : 25.00 Evaluated at bid price : 25.40 Bid-YTW : 3.98 % |
ENB.PR.B | FixedReset | 33,611 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-08-21 Maturity Price : 22.38 Evaluated at bid price : 23.04 Bid-YTW : 4.64 % |
There were 54 other index-included issues trading in excess of 10,000 shares. |
Wide Spread Highlights | ||
Issue | Index | Quote Data and Yield Notes |
BAM.PR.K | Floater | Quote: 17.80 – 18.59 Spot Rate : 0.7900 Average : 0.4461 YTW SCENARIO |
TD.PR.S | FixedReset | Quote: 23.90 – 24.71 Spot Rate : 0.8100 Average : 0.4729 YTW SCENARIO |
TRI.PR.B | Floater | Quote: 23.50 – 24.49 Spot Rate : 0.9900 Average : 0.7246 YTW SCENARIO |
ENB.PR.D | FixedReset | Quote: 22.15 – 22.80 Spot Rate : 0.6500 Average : 0.4413 YTW SCENARIO |
POW.PR.B | Perpetual-Discount | Quote: 22.58 – 23.00 Spot Rate : 0.4200 Average : 0.2791 YTW SCENARIO |
ENB.PR.N | FixedReset | Quote: 23.10 – 23.55 Spot Rate : 0.4500 Average : 0.3133 YTW SCENARIO |
DBRS Concerned About BCE
August 20th, 2013DBRS has announced:
BCE has a large number of preferred share issues outstanding:
Ratchet Rate: BCE.PR.B, BCE.PR.D, BCE.PR.E, BCE.PR.H, BCE.PR.J, BCE.PR.S and BCE.PR.Y
FixedFloater: BCE.PR.A, BCE.PR.C, BCE.PR.F, BCE.PR.G, BCE.PR.I, BCE.PR.R, BCE.PR.T and BCE.PR.Z
FixedReset: BCE.PR.K
All are tracked by HIMIPref™; all are consigned to the Scraps index on credit concerns.
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