PrefBlog

Unbelievable.

I’ll have more to say over the weekend, but for now I think “Unbelievable” about covers it. Any decent bid was picked off and not replaced. Bid/Ask spreads routinely more than $1. Perfectly good prefs getting hammered in a blind rush to the exits.

A few investors will have made incredible bargains today, as some of the intra day lows were … really low.

The price-performers table is today limited to changes in excess of 10%. That’s how … unbelievable … it was.

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

More bad news for the BCE buy-out:

The value of high-risk, high-yield loans used to fund leveraged buyouts tumbled amid speculation that more than 1 billion euros ($1.4 billion) of debt is being offered for sale, including assets seized from Iceland’s banks.

Who knows? Somebody’s going to take a huge and immediate mark-to-market loss if the deal goes through. BCE common is trading well below the buy-out price … all I can say is that whatever happens will be interesting!

There are reports that Paulson will adopt the PrefBlog plan of direct capital injections (which, one hopes, will be preferred shares, perhaps convertable, with a punitive dividend):

Treasury Secretary Henry Paulson is weighing plans for the U.S. government to invest in banks as the next step in trying to resolve the deepening credit crisis.

“These capital injections are something that Secretary Paulson is actively considering,” White House Press Secretary Dana Perino said in a briefing in Washington. She also said President George W. Bush will meet with Group of Seven finance ministers at the White House on Oct. 11.

Paulson told reporters in Washington yesterday that legislation Congress passed last week to rescue financial institutions gave him broad authority that he intends to use, beyond just buying mortgage-related assets on banks’ balance sheets. He indicated that an option available may be boosting companies’ capital with cash infusions.

Treasury fails were briefly mentioned on September 29. Bloomberg had an interesting update:

The Treasury began selling $40 billion in additional debt yesterday to relieve the pressure in the $7 trillion-a-day market for borrowing and lending securities. The Fed also cut the minimum fee it charges dealers to borrow securities from its open market account as part of its daily securities lending program. Demand for the relative safety of government securities has surged this month as the seizure in credit markets around the world deepened.

Dealers often let trades in the repurchase, or repo, agreement market go uncompleted when it is difficult to obtain the securities or the cost to get the securities becomes too expensive. Since dealers typically use repurchase agreements to finance their holdings, movements in the rates affect the cost of holding the securities in inventory.

A lockup in the Treasury repo market is indicative of extreme fear. People are not willing to let government paper out of their hands, even when secured by cash collateral.

PerpetualDiscounts enjoyed their thirteenth consecutive trading day of negative total return. The last up-day was September 22; since then, the index has lost 7.74%. Pretty boring, eh? Hell, common equities can lose that before lunch.

Another confused day, but CM issues picked up a little. You want wild? As I sign off, Tokyo’s down 10% … tomorrow could well be fun!

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

As many will have noted, a lot of things haven’t been posted yet that should be posted. For various reasons – includng, but not limited to, what the market is doing, this is Misery Week.

Things like commentary on MAPF and best/worst lists for September have gone by the board but will appear … eventually.

PerpetualDiscounts now yield 6.70% on average, equivalent to 9.38% at the standard 1.4x equivalency factor. Long corporates have popped up to about 6.9%, so the spread is not as unreasonable as one might suppose, at 248bp.

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

Via Dealbreaker comes news that CME and Citadel will be starting a CDS exchange. The follows reports yesterday that the Fed was pushing the principals of a proposed clearinghouse to get moving; the report noted:

CNBC reported earlier that the Fed was meeting with officials from Chicago-based futures exchange operator CME Group and the Intercontinental Exchange Inc., the second-largest U.S. futures market, to create a marketplace for credit-default swaps.

Kelly Loeffler, a spokeswoman for Intercontinental Exchange, and CME spokeswoman Mary Haffenberg declined to comment on the meeting. Both companies have announced plans to offer clearing services for the market and ICE earlier this year bought credit swap broker Creditex Group Inc., which is one of the owners of Clearing Corp.

CME last year started offering futures contracts that were similar to credit-default swaps in an effort to tap into the over-the-counter market, which had swelled more than 100-fold the past seven years.

For background, see the post Exchange Traded CDSs and Accrued Interest.

I’ve updated the post SEC and BSC with some juicy de-redactions.

There is a cheery note from Bloomberg:

The Standard & Poor’s 500 Index lost 18 percent since the start of 2000 after sinking 11 percent this month, total return data compiled by Bloomberg show. The decline would be the first for a decade in 70 years and exceeds the 8.9 percent plunge in the 1930s, following the stock market crash of 1929, data compiled by New York University’s Stern School of Business show.

Econbrowser‘s Menzie Chinn paraphrases an IMF report on historical experience with finance-led recessions and provides a cheery chart:

The risk weight of Fannie/Freddie debt is being cut to 10%:

The Federal Deposit Insurance Corp. today tentatively approved a rule, proposed by all four federal bank regulators, that eases capital requirements for federally insured depository institutions that hold large amounts of Fannie and Freddie corporate debt, subordinated debt, mortgage guarantees and derivatives. The so-called risk weighting for banks on Fannie and Freddie’s credit claims was cut to 10 percent from 20 percent.

Sub-debt, too? Let’s hope they’ve got some really good signatures on the government guarantee!

At the same time, the banks are putting the screws to any borrower who breaches covenants. It’s every man for himself!

Brookfield issues were killed today. Annihilated. There has been a significant increase in options activity but the most recent actual news I can find is that Brookfield Residential Property Services has bought GMAC Home Services LLC. GMAC Home Services Mortgage and GMAC Real Estate were also included in the deal. But that was September 23. Are there any options mavens out there (you know who you are!) who want to take a stab at estimating default probabilities and times for the BAM retractibles, perps and BNA split-shares?

As at October 6, BMO-CM calls Brookfield a market-performer; it was down significantly today, but given that it outperformed slightly yesterday that’s not all too much surprising. If anybody can explain this, let me know!

What can I say? At 6.63%, PerpetualDiscount yields are now equal to their July 16 peak. This time around, though, long corporates are at about 6.70, so the interest-equivalent yield of 9.28% is a spread of “only” 258bp. Hell, we were there in June.

What gets me, though, and what has people who know me crossing the street so I won’t complain to them about it again, is just how sloppy the market is. It’s outrageous! If it keeps up, you won’t need any fancy software to outperform the market … just the ability to calculate current yields for similar issues with the same ex-Date.

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