ECBC Releases 2008 Covered Bond Fact Book

October 10th, 2008

The European Covered Bond Council has released its 2008 Fact book:

The Fact Book presents five articles on key issues in Chapter I with a focus on developments in primary and secondary markets during the recent financial turmoil:

  • Assessing the state of play in secondary markets;
  • Analysing the role of Covered Bonds as a funding tool;
  • The investor’s perspective;
  • Investigating general law framework (structured) Covered Bonds; and
  • Looking at pooling models.

The second Chapter explains more about covered bonds and their main features and includes articles comparing Covered Bonds with RMBS as well as how the Capital Requirements Directive relates to Covered Bonds.

In the third Chapter, detailed explanations are presented on the legislation and markets for covered bonds for 29 countries, including seven countries added since the last edition of the Fact Book.

Chapter IV gives the rating agencies the opportunity to present their Covered Bond methodologies as well as providing a brief comparison of their different approaches.

In Chapter V, a description of trends in the covered market as well as a complete set of covered bond statistics are presented.

Can’t say I’ve read it thoroughly – there have been other things to observe today – but the last handbook, mentioned in the PrefBlog Covered Bond Primer was most informative.

Posted in Interesting External Papers | 2 Comments »

October 9, 2008

October 10th, 2008

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!

Note that these indices are experimental; the absolute and relative daily values are expected to change in the final version. In this version, index values are based at 1,000.0 on 2006-6-30.
The Fixed-Reset index was added effective 2008-9-5 at that day’s closing value of 1,119.4 for the Fixed-Floater index.
Index Mean Current Yield (at bid) Mean YTW Mean Average Trading Value Mean Mod Dur (YTW) Issues Day’s Perf. Index Value
Ratchet N/A N/A N/A N/A 0 N/A N/A
Fixed-Floater 5.43% 5.73% 76,273 14.71 6 +0.1299% 949.9
Floater 6.39% 6.45% 48,783 13.28 2 -1.7760% 632.0
Op. Retract 5.40% 6.39% 124,406 3.85 14 -0.2004% 975.6
Split-Share 6.33% 10.60% 57,895 4.01 12 -0.7627% 896.3
Interest Bearing 7.10% 9.88% 46,779 3.55 3 -0.3459% 975.4
Perpetual-Premium 6.51% 6.56% 54,775 13.10 1 0.0000% 953.7
Perpetual-Discount 6.68% 6.73% 175,619 12.94 70 -0.4306% 807.6
Fixed-Reset 5.18% 5.03% 1,039,526 15.34 10 -0.2134% 1,104.0

.

Major Price Changes
Issue Index Change Notes
FFN.PR.A SplitShare -8.7059% Closing quote 7.76-8.75, 3×2. Not as bad as it looks … the low for the day was $8.50, with the last trade of the day at 3:48. You can’t expect the Toronto Stock Exchange to expect its market makers to react in a mere 12 minutes, can you? And besides, the eight trades probably strained their systems. And this is a relatively small issue, after all. Markets will be much tighter on more heavily traded better names, particularly if they were issued this year, right? Now with a pre-tax bid-YTW of 10.38% based on a bid of 7.76 and a hardMaturity 2014-12-1 at 10.00.
RY.PR.H PerpetualDiscount -6.6222% More garbage from the Toronto Stock Exchange. Last trade 22.20 at 3:14pm. Low for the day 22.20. Closing quote 21.01-22.20. Now with a pre-tax bid-YTW of 6.85% based on a bid of 21.01 and a limitMaturity.
DFN.PR.A SplitShare -6.1905% Asset coverage of just under 2.2:1 as of September 30, according to the company. Now with a pre-tax bid-YTW of 10.07% based on a bid of 7.88 and a hardMaturity 2014-12-1 at 10.00.
HSB.PR.C PerpetualDiscount -4.7619% Now with a pre-tax bid-YTW of 7.16% based on a bid of 18.00 and a limitMaturity.
BAM.PR.I OpRet -4.5455% Now with a pre-tax bid-YTW of 9.56% based on a bid of 21.00 and a softMaturity 2013-12-30 at 25.00. Compare with BAM.PR.H (11.24% to 2013-6-30), BAM.PR.J (12.30% to 2018-3-30) and BAM.PR.O (9.56% to 2013-12-30); and with the perpetuals at about 9.25%.
SLF.PR.C PerpetualDiscount -4.2045% Now with a pre-tax bid-YTW of 6.67% based on a bid of 16.86 and a limitMaturity.
BNS.PR.O PerpetualDiscount -3.8710% Now with a pre-tax bid-YTW of 6.28% based on a bid of 22.35 and a limitMaturity.
MFC.PR.C PerpetualDiscount -3.7297% Now with a pre-tax bid-YTW of 6.39% based on a bid of 17.81 and a limitMaturity.
TD.PR.Q PerpetualDiscount -3.6904% Now with a pre-tax bid-YTW of 6.56% based on a bid of 21.40 and a limitMaturity.
BAM.PR.K Floater -3.5714%  
BCE.PR.C FixFloat -3.4253%  
GWO.PR.F PerpetualDiscount -3.2648% Now with a pre-tax bid-YTW of 6.19% based on a bid of 24.00 and a limitMaturity.
SLF.PR.E PerpetualDiscount -2.8571% Now with a pre-tax bid-YTW of 6.69% based on a bid of 17.00 and a limitMaturity.
GWO.PR.E PerpetualDiscount -2.8283% Now with a pre-tax bid-YTW of 5.57% based on a bid of 24.05 and a limitMaturity.
TCA.PR.Y PerpetualDiscount -2.7839% Now with a pre-tax bid-YTW of 6.36% based on a bid of 44.00 and a limitMaturity. Still slightly below the average PerpetualDiscount yield, just as it was when I complained about them based on March 20 data.
WFS.PR.A SplitShare -2.7545% Asset coverage of 1.5+:1 as of September 30 according to the company. Now with a pre-tax bid-YTW of 13.95% based on a bid of 8.12 and a hardMaturity 2011-6-30 at 10.00.
TD.PR.O PerpetualDiscount -2.4611% Now with a pre-tax bid-YTW of 6.26% based on a bid of 19.42 and a limitMaturity.
BCE.PR.A FixFloat -2.2727%  
BAM.PR.J OpRet -2.2486% See BAM.PR.I, above
FBS.PR.B SplitShare -2.2222% Asset coverage of 1.5+:1 as of October 2, according to TD Securities. Now with a pre-tax bid-YTW of 9.37% based on a bid of 8.80 and a hardMaturity 2011-12-15 at 10.00. Perhaps in an effort to halt the carnage, the fund announced a dividend increase for the capital units; Special Annual Retraction in December …. hmmm ….
BCE.PR.Y Ratchet -2.1739%  
PWF.PR.G PerpetualDiscount -2.1088% Now with a pre-tax bid-YTW of 6.36% based on a bid of 23.21 and a limitMaturity.
TD.PR.R PerpetualDiscount -2.0000% Now with a pre-tax bid-YTW of 6.37% based on a bid of 22.05 and a limitMaturity.
PWF.PR.E PerpetualDiscount -1.9608% Now with a pre-tax bid-YTW of 6.25% based on a bid of 22.00 and a limitMaturity.
BNS.PR.K PerpetualDiscount -1.7857% Now with a pre-tax bid-YTW of 6.25% based on a bid of 19.25 and a limitMaturity.
BCE.PR.Z FixFloat -1.7552%  
CU.PR.A PerpetualDiscount -1.7391% Now with a pre-tax bid-YTW of 6.51% based on a bid of 22.60 and a limitMaturity.
FTN.PR.A SplitShare -1.7202% Asset coverage of 2.2+:1 as of September 30 according to the company. Now with a pre-tax bid-YTW of 8.00% based on a bid of 8.57 and a hardMaturity 2015-12-1 at 10.00.
ELF.PR.G PerpetualDiscount -1.7038% Now with a pre-tax bid-YTW of 7.98% based on a bid of 15.00 and a limitMaturity.
TCA.PR.X PerpetualDiscount -1.6536% Now with a pre-tax bid-YTW of 6.36% based on a bid of 44.01 and a limitMaturity.
RY.PR.B PerpetualDiscount -1.6216% Now with a pre-tax bid-YTW of 6.57% based on a bid of 18.20 and a limitMaturity.
NA.PR.L PerpetualDiscount -1.6120% Now with a pre-tax bid-YTW of 6.85% based on a bid of 17.70 and a limitMaturity.
RY.PR.E PerpetualDiscount -1.5978% Now with a pre-tax bid-YTW of 6.41% based on a bid of 17.86 and a limitMaturity.
ALB.PR.A SplitShare -1.5313% Asset coverage of 1.6+:1 as of October 2 according to Scotia Managed Companies. Now with a pre-tax bid-YTW of 7.97% based on a bid of 23.15 and a hardMaturity 2011-2-28 at 25.00.
NA.PR.N FixedReset -1.4199%  
W.PR.J PerpetualDiscount -1.3333% Now with a pre-tax bid-YTW of 7.63% based on a bid of 18.50 and a limitMaturity.
BNS.PR.L PerpetualDiscount -1.3151% Now with a pre-tax bid-YTW of 6.27% based on a bid of 18.01 and a limitMaturity.
NA.PR.M PerpetualDiscount -1.2975% Now with a pre-tax bid-YTW of 6.80% based on a bid of 22.06 and a limitMaturity.
BNS.PR.R FixedReset -1.1789%  
BNA.PR.A SplitShare -1.1358% Asset coverage of 3.2+:1 as of August 31 according to the company. Coverage now of 2.0+:1 based on BAM.A at 21.48 and 2.4 BAM.A held per preferred. Now with a pre-tax bid-YTW of 19.36% based on a bid of 20.02 and a hardMaturity 2010-9-30 at 25.00. Compare with BNA.PR.B (11.38% to 2016-3-25) and BNA.PR.C (13.15% to 2019-1-10).
BNS.PR.J PerpetualDiscount -1.1034% Now with a pre-tax bid-YTW of 6.12% based on a bid of 21.51 and a limitMaturity.
BNS.PR.M PerpetualDiscount -1.0959% Now with a pre-tax bid-YTW of 6.26% based on a bid of 18.05 and a limitMaturity.
STW.PR.A InterestBearing -1.0204% Asset coverage of just under 1.6:1 as of October 2 according to Middlefield. Now with a pre-tax bid-YTW of 8.61% (mostly as interest) based on a bid of 9.70 and a hardMaturity 2009-12-31 at 10.00.
BNS.PR.P FixedReset -1.0204%  
RY.PR.I FixedReset -1.0040%  
POW.PR.C PerpetualDiscount +1.0000% Now with a pre-tax bid-YTW of 7.23% based on a bid of 20.20 and a limitMaturity.
BNA.PR.B SplitShare +1.4101% See BNA.PR.A, above
BMO.PR.H PerpetualDiscount +1.4925% Now with a pre-tax bid-YTW of 6.61% based on a bid of 20.40 and a limitMaturity.
RY.PR.F PerpetualDiscount +1.5402% Now with a pre-tax bid-YTW of 6.36% based on a bid of 17.80 and a limitMaturity.
CU.PR.B PerpetualDiscount +1.5402% Now with a pre-tax bid-YTW of 6.36% based on a bid of 17.80 and a limitMaturity.
GWO.PR.G PerpetualDiscount +1.7465% Now with a pre-tax bid-YTW of 7.28% based on a bid of 18.06 and a limitMaturity.
LBS.PR.A SplitShare +1.7964% Asset coverage of just under 2.0:1 as of October 2, according to Brompton Group. Now with a pre-tax bid-YTW of 9.00% based on a bid of 8.50 and a hardMaturity 2013-11-29 at 10.00.
BMO.PR.K PerpetualDiscount +1.8653% Now with a pre-tax bid-YTW of 6.80% based on a bid of 19.66 and a limitMaturity.
POW.PR.B PerpetualDiscount +1.8692% Now with a pre-tax bid-YTW of 7.27% based on a bid of 18.53 and a limitMaturity.
ENB.PR.A PerpetualDiscount +1.9530% Now with a pre-tax bid-YTW of 6.06% based on a bid of 22.97 and a limitMaturity.
TD.PR.Y FixedReset +1.9992%  
CM.PR.E PerpetualDiscount +2.2043% Now with a pre-tax bid-YTW of 7.40% based on a bid of 19.01 and a limitMaturity.
MFC.PR.A OpRet +2.3779% Now with a pre-tax bid-YTW of 4.75% based on a bid of 24.11 and a softMaturity 2015-12-18 at 25.00.
BAM.PR.H SplitShare +2.4390% See BAM.PR.I, above
CM.PR.P PerpetualDiscount +2.4590% Now with a pre-tax bid-YTW of 7.37% based on a bid of 18.75 and a limitMaturity.
CM.PR.I PerpetualDiscount +2.4845% Now with a pre-tax bid-YTW of 7.15% based on a bid of 16.50 and a limitMaturity.
NA.PR.K PerpetualDiscount +3.2864% Now with a pre-tax bid-YTW of 6.63% based on a bid of 22.00 and a limitMaturity.
PWF.PR.H PerpetualDiscount +4.4444% Now with a pre-tax bid-YTW of 6.12% based on a bid of 23.50 and a limitMaturity.
W.PR.H PerpetualDiscount +7.0588% Now with a pre-tax bid-YTW of 7.25% based on a bid of 19.11 and a limitMaturity.
BCE.PR.I FixFloat +7.4092%  
LFE.PR.A SplitShare +11.8335% Asset coverage of just under 2.2:1 as of September 30, according to the company. Now with a pre-tax bid-YTW of 9.51% based on a bid of 8.60 and a hardMaturity 2012-12-1 at 10.00.
Volume Highlights
Issue Index Volume Notes
L.PR.A Scraps (would be OpRet but there are credit concerns) 121,225 CIBC crossed 79,900 at 21.80, then another 16,300 at the same price. Now with a pre-tax bid-YTW of 8.93% based on a bid of 21.80 and a softMaturity 2015-7-30 at 25.00.
BMO.PR.I OpRet 117,115 Nesbitt crossed 75,000 at 25.16, then Scotia bought 19,000 from anonymous at 25.21, then Nesbitt crossed 18,000 at 25.20. Now with a pre-tax bid-YTW of 3.04% based on a bid of 25.20 and a softMaturity 2008-11-24 at 25.00.
BNS.PR.M PerpetualDiscount 70,226 Nesbitt crossed 50,000 at 18.20. Now with a pre-tax bid-YTW of 6.26% based on a bid of 18.05 and a limitMaturity.
CM.PR.H PerpetualDiscount 30,038 CIBC crossed 12,000 at 16.45. Now with a pre-tax bid-YTW of 7.49% based on a bid of 16.10 and a limitMaturity.
RY.PR.H PerpetualDiscount 25,965 RBC crossed 10,000 at 22.73. Now with a pre-tax bid-YTW of 6.85% based on a bid of 21.01 and a limitMaturity.
TD.PR.Q PerpetualDiscount 24,390 Now with a pre-tax bid-YTW of 6.56% based on a bid of 21.40 and a limitMaturity.

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

Posted in Market Action | No Comments »

CEBS Reports on Banks' Transparency

October 9th, 2008

The Committee of European Banking Supervisors (CEBS) has released a report on Bank Reporting:

In line with a commitment given in the ‘Report on banks’ transparency on activities and products affected by the recent market turmoil’ published on 18 June 2008, CEBS has carried out a follow-up review of banks’ half year disclosures as of 30 June 2008.

The good practices identified in the 18 June report cover disclosures of the impact of the market turmoil on results and on exposures – these areas are in line with the recommendations of the Financial Stability Forum (FSF) – and also information on business models, risk management practices, accounting and valuation practices.

CEBS is of the view that for the 22 large banks – 19 of which originate from the EU – covered by the analysis, the disclosures on the impact of the market turmoil and on exposure levels have improved since the last assessment. In particular improvements have been observed with regard to the levels of details of the information. For these areas, the disclosures are considered to be in line with the good practices identified in the June report .

Differences in disclosures between the banks included in the analysis are considered to be commensurate with the varying levels of their involvement in the activities under consideration.

By contrast, disclosures on business models – and to a lesser extent disclosures on risks and risk management practices – are less detailed and have not improved to the same extent. Some of the institutions analysed have incorporated the CEBS’s good practices for these areas but the majority of institutions included in the sample still have to make efforts to bring their disclosures up to that standard.

Posted in Interesting External Papers | No Comments »

October 8, 2008

October 9th, 2008

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.

Note that these indices are experimental; the absolute and relative daily values are expected to change in the final version. In this version, index values are based at 1,000.0 on 2006-6-30.
The Fixed-Reset index was added effective 2008-9-5 at that day’s closing value of 1,119.4 for the Fixed-Floater index.
Index Mean Current Yield (at bid) Mean YTW Mean Average Trading Value Mean Mod Dur (YTW) Issues Day’s Perf. Index Value
Ratchet N/A N/A N/A N/A 0 N/A N/A
Fixed-Floater 5.43% 5.69% 77,301 14.68 6 -6.6340% 948.7
Floater 6.27% 6.33% 49,473 13.46 2 -0.4836% 643.4
Op. Retract 5.39% 6.44% 125,626 3.86 14 -1.7805% 977.5
Split-Share 6.27% 10.31% 58,118 4.03 12 -1.7959% 903.2
Interest Bearing 7.07% 9.53% 45,543 3.55 3 -3.4398% 978,8
Perpetual-Premium 6.51% 6.56% 55,527 13.10 1 -2.1996% 953.7
Perpetual-Discount 6.64% 6.70% 176,645 12.99 70 -1.0022% 811.0
Fixed-Reset 5.17% 5.02% 1,064,284 15.36 10 +0.8785% 1,106.4

.

Major Price Changes
Issue Index Change Notes
LFE.PR.A SplitShare -16.4130% Asset coverage of just under 2.2:1 as of September 30, according to the company. Now with a pre-tax bid-YTW of 12.71% based on a bid of 7.69 and a hardMaturity 2012-12-1 at 10.00. Not as bad as it looks – the low for the day was $9.00 and the closing quote was a Toronto Special: 7.69-9.28, 17×1.
BAM.PR.H OpRet -9.0909% Now with a pre-tax bid-YTW of 12.42% based on a bid of 20.50 and a softMaturity 2012-3-30 at 25.00. Compare with BAM.PR.I (8.48% to 2013-12-30), BAM.PR.J (11.94% to 2018-3-30) and BAM.PR.O (11.23% to 2013-6-30); and with the perpetuals at 9.25%.
BCE.PR.R FixFloat -8.6957%  
BAM.PR.J OpRet -7.8826% See BAM.PR.H, above.
BCE.PR.G FixFloat -7.2848%  
BCE.PR.I FixFloat -7.2845%  
BAM.PR.M PerpetualDiscount -7.1378% Now with a pre-tax bid-YTW of 9.25% based on a bid of 13.01 and a limitMaturity.
BNA.PR.C SplitShare -6.3571% Asset coverage of 3.2+:1 as of August 31 according to the company. Coverage now of 2.2+:1 based on BAM.A at 23.37 and 2.4 BAM.A held per preferred. Now with a pre-tax bid-YTW of 13.02% based on a bid of 13.11 and a hardMaturity 2019-1-10 at 25.00. Compare with BNA.PR.A (11.62% to 2016-3-25) and BNA.PR.B (18.66% [!] to 2016-3-25). Wild.
FIG.PR.A InterestBearing -5.7143% Asset coverage of 1.6+:1 as of October 3, according to Faircourt. Now with a pre-tax bid-YTW of 10.23% based on a bid of 8.25 and a hardMaturity 2014-12-31 at 10.00.
BCE.PR.Z FixFloat -5.7011%  
BCE.PR.C FixFloat -5.5281%  
BMO.PR.K PerpetualDiscount -5.3922% Now with a pre-tax bid-YTW of 6.92% based on a bid of 19.30 and a limitMaturity.
BSD.PR.A InterestBearing -5.3659% Asset coverage of just under 1.3:1 as of October 3, according to Brookfield Funds. The asset coverage implies no more distributions to capital units. Now with a pre-tax bid-YTW of 11.11% based on a bid of 7.76 and a hardMaturity 2015-3-31 at 10.00.
POW.PR.C PerpetualDiscount -5.2133% Now with a pre-tax bid-YTW of 7.30% based on a bid of 20.00 and a limitMaturity.
BAM.PR.B Floater -5.0873% Closing quote 12.50-99, 5×5. Compare with its “weak pair”, 14.00-74, 2×10.
MFC.PR.A OpRet -4.8869% Now with a pre-tax bid-YTW of 5.14% based on a bid of 23.55 and a softMaturity 2015-12-18 at 25.00.
TD.PR.M PerpetualDiscount -4.2520% Now with a pre-tax bid-YTW of 5.28% based on a bid of 24.32 and a limitMaturity.
TD.PR.Q PerpetualDiscount -4.0587% Now with a pre-tax bid-YTW of 6.31% based on a bid of 22.22 and a limitMaturity.
SLF.PR.A PerpetualDiscount -4.0000% Now with a pre-tax bid-YTW of 6.66% based on a bid of 18.00 and a limitMaturity.
BAM.PR.O OpRet -3.7037% See BAM.PR.H, above
PWF.PR.I PerpetualDiscount -3.4649% Now with a pre-tax bid-YTW of 6.65% based on a bid of 22.61 and a limitMaturity.
BMO.PR.J PerpetualDiscount -3.4091% Now with a pre-tax bid-YTW of 6.73% based on a bid of 17.00 and a limitMaturity.
IAG.PR.A PerpetualDiscount -2.8571% Now with a pre-tax bid-YTW of 6.83% based on a bid of 17.00 and a limitMaturity.
PWF.PR.J OpRet -2.8250% Now with a pre-tax bid-YTW of 5.62% based on a bid of 24.00 and a softMaturity 2013-7-30 at 25.00.
GWO.PR.H PerpetualDiscount -2.7222% Now with a pre-tax bid-YTW of 7.00% based on a bid of 17.51 and a limitMaturity.
POW.PR.A PerpetualDiscount -2.6975% Now with a pre-tax bid-YTW of 6.98% based on a bid of 20.20 and a limitMaturity.
BMO.PR.L PerpetualDiscount -2.6549% Now with a pre-tax bid-YTW of 6.70% based on a bid of 22.00 and a limitMaturity.
W.PR.H PerpetualDiscount -2.5655% Now with a pre-tax bid-YTW of 7.76% based on a bid of 17.85 and a limitMaturity.
RY.PR.C PerpetualDiscount -2.4718% Now with a pre-tax bid-YTW of 6.45% based on a bid of 18.15 and a limitMaturity.
CM.PR.P PerpetualDiscount -2.4000% Now with a pre-tax bid-YTW of 7.55% based on a bid of 18.30 and a limitMaturity.
POW.PR.B PerpetualDiscount -2.3093% Now with a pre-tax bid-YTW of 7.41% based on a bid of 18.19 and a limitMaturity.
CM.PR.J PerpetualDiscount -2.2581% Now with a pre-tax bid-YTW of 7.46% based on a bid of 15.15 and a limitMaturity.
TD.PR.R PerpetualDiscount -2.2164% Now with a pre-tax bid-YTW of 6.24% based on a bid of 22.50 and a limitMaturity.
CL.PR.B PerpetualPremium (for now!) -2.1996% Now with a pre-tax bid-YTW of 6.56% based on a bid of 24.01 and a limitMaturity.
BAM.PR.N PerpetualDiscount -2.1788% Now with a pre-tax bid-YTW of 9.25% based on a bid of 13.02 and a limitMaturity.
RY.PR.H PerpetualDiscount -2.1739% Now with a pre-tax bid-YTW of 6.38% based on a bid of 22.50 and a limitMaturity.
FTN.PR.A SplitShare -2.0225% Asset coverage of 2.2+:1 as of September 30 according to the company. Now with a pre-tax bid-YTW of 7.69% based on a bid of 7.69% and a hardMaturity 2015-12-1 at 10.00.
BNS.PR.K PerpetualDiscount -2.0000% Now with a pre-tax bid-YTW of 6.14% based on a bid of 19.60 and a limitMaturity.
CM.PR.R PerpetualDiscount -2.0000% Now with a pre-tax bid-YTW of 5.54% based on a bid of 24.50 and a limitMaturity.
NA.PR.K PerpetualDiscount -1.9655% Now with a pre-tax bid-YTW of 6.87% based on a bid of 21.30 and a limitMaturity.
PWF.PR.F PerpetualDiscount -1.9005% Now with a pre-tax bid-YTW of 6.62% based on a bid of 19.90 and a limitMaturity.
NA.PR.M PerpetualDiscount -1.8359% Now with a pre-tax bid-YTW of 6.71% based on a bid of 22.35 and a limitMaturity.
IGM.PR.A PerpetualDiscount -1.7544% Now with a pre-tax bid-YTW of 5.63% based on a bid of 25.20 and a softMaturity 2013-6-29 at 25.00.
BNA.PR.B SplitShare -1.6185% See BNA.PR.C, above
RY.PR.W PerpetualDiscount -1.6046% Now with a pre-tax bid-YTW of 6.56% based on a bid of 19.01 and a limitMaturity.
DFN.PR.A SplitShare -1.5240% Asset coverage of just under 2.2:1 as of September 30, according to the company. Now with a pre-tax bid-YTW of 8.76% based on a bid of 8.40 and a hardMaturity 2014-12-1 at 10.00.
TCA.PR.X PerpetualDiscount -1.4317% Now with a pre-tax bid-YTW of 6.25% based on a bid of 44.75 and a limitMaturity.
ALB.PR.A SplitShare -1.4256% Asset coverage of 1.6+:1 as of October 2 according to Scotia Managed Companies. Now with a pre-tax bid-YTW of 7.25% based on a bid of 23.51 and a hardMaturity 2011-2-28 at 25.00.
ELF.PR.F PerpetualDiscount -1.4118% Now with a pre-tax bid-YTW of 7.97% based on a bid of 16.76 and a limitMaturity.
BNS.PR.M PerpetualDiscount -1.4046% Now with a pre-tax bid-YTW of 6.19% based on a bid of 18.25 and a limitMaturity.
RY.PR.B PerpetualDiscount -1.3333% Now with a pre-tax bid-YTW of 6.46% based on a bid of 18.50 and a limitMaturity.
MFC.PR.B PerpetualDiscount -1.3333% Now with a pre-tax bid-YTW of 6.36% based on a bid of 18.50 and a limitMaturity.
ENB.PR.A PerpetualDiscount -1.1842% Now with a pre-tax bid-YTW of 6.18% based on a bid of 22.53 and a limitMaturity.
SLF.PR.B PerpetualDiscount -1.1076% Now with a pre-tax bid-YTW of 6.46% based on a bid of 18.75 and a limitMaturity.
CU.PR.A PerpetualDiscount -1.0753% Now with a pre-tax bid-YTW of 6.39% based on a bid of 23.00 and a limitMaturity.
BCE.PR.Y Ratchet -1.0753%  
GWO.PR.E OpRet -1.0396% Now with a pre-tax bid-YTW of 4.96% based on a bid of 24.75 and a softMaturity 2014-3-30 at 25.00.
RY.PR.A PerpetualDiscount +1.0158% Now with a pre-tax bid-YTW of 6.32% based on a bid of 17.90 and a limitMaturity.
BNS.PR.R FixedReset +1.0267%  
RY.PR.E PerpetualDiscount +1.0579% Now with a pre-tax bid-YTW of 6.31% based on a bid of 18.15 and a limitMaturity.
PWF.PR.H PerpetualDiscount -1.1477% Now with a pre-tax bid-YTW of 6.40% based on a bid of 22.50 and a limitMaturity.
RY.PR.I FixedReset +1.4257%  
FBS.PR.B SplitShare +2.1566% Asset coverage of 1.5+:1 as of October 2, according to TD Securities. Now with a pre-tax bid-YTW of 8.57% based on a bid of 9.00 and a hardMaturity 2011-12-15 at 10.00. Perhaps in an effort to halt the carnage, the fund announced a dividend increase for the capital units; let’s see … FBS.B closed at 4.90; FBS.PR.B closed at 8.80; NAV $15.07 as of October 2; Special Annual Retraction in December …. hmmm ….
BNS.PR.Q FixedReset +2.2917%  
MFC.PR.C PerpetualDiscount +2.7778% Now with a pre-tax bid-YTW of 6.15% based on a bid of 18.50 and a limitMaturity.
PWF.PR.E PerpetualDiscount +2.8148% Now with a pre-tax bid-YTW of 6.12% based on a bid of 22.44 and a limitMaturity.
NA.PR.N FixedReset +2.8963%  
WFS.PR.A SplitShare +2.9593% Asset coverage of 1.5+:1 as of September 30 according to the company. Now with a pre-tax bid-YTW of 12.75% based on a bid of 8.35 and a hardMaturity 2011-6-30 at 10.00.
TD.PR.O PerpetualDiscount +3.4286% Now with a pre-tax bid-YTW of 6.11% based on a bid of 19.11 and a limitMaturity.
BAM.PR.K Floater +3.6269% See BAM.PR.B, above … and go figure.
BAM.PR.I OpRet +9.8901% See BAM.PR.H, above.
Volume Highlights
Issue Index Volume Notes
TD.PR.M OpRet 272,700 National crossed 22,000 at 25.40, then CIBC crossed 250,000 at 24.90. Now with a pre-tax bid-YTW of 5.28% based on a bid of 24.32 and a softMaturity 2013-10-30 at 25.00.
TD.PR.N OpRet 250,000 CIBC crossed 250,000 at 24.85. Now with a pre-tax bid-YTW of 5.43% based on a bid of 24.02 and a softMaturity 2014-1-30 at 25.00.
MFC.PR.A OpRet 204,195 National crossed 200,000 at 25.05. Now with a pre-tax bid-YTW of 5.14% based on a bid of 23.55 and a softMaturity 2015-12-18 at 25.00. MFC is a fine company, but it shouldn’t be trading through TDs of shorter term.
BAM.PR.H OpRet 110,130 CIBC crossed 100,000 at 21.25. See above.
NA.PR.K PerpetualDiscount 104,450 CIBC crossed 100,000 at 21.75. Now with a pre-tax bid-YTW of 6.87% based on a bid of 21.30 and a limitMaturity.

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

Posted in Market Action | 4 Comments »

TD Throws Down the Gauntlet on Prime

October 8th, 2008

TD Bank has announced:

it has lowered its prime lending rate by 25 basis points to 4.50 per cent, effective October 9, 2008.
“Like all financial institutions, we have been watching the key lending rates very closely. Continuing market turmoil has steadily driven up the cost of borrowing for financial institutions. This makes it challenging to match the Bank of Canada rate cut at this time. We recognize the efforts the Bank of Canada is making and, despite the fact that our cost of funds remains high, we have decided to reduce our rate by 25 bps. We see this as a balanced move in managing our funds and passing along the intended benefits to our customers,” said Tim Hockey, President and CEO, TD Canada Trust.

This follows the Bank of Canada announcement:

Throughout the current financial crisis, central banks have engaged in continuous close consultation and have cooperated in unprecedented joint actions such as the provision of liquidity to reduce strains in financial markets.

Inflationary pressures have started to moderate in a number of countries, partly reflecting a marked decline in energy and other commodity prices. Inflation expectations are diminishing and remain anchored to price stability. The recent intensification of the financial crisis has augmented the downside risks to growth and thus has diminished further the upside risks to price stability.

Some easing of global monetary conditions is therefore warranted. Accordingly, the Bank of Canada, the Bank of England, the European Central Bank, the Federal Reserve, Sveriges Riksbank and the Swiss National Bank are today announcing reductions in policy interest rates. The Bank of Japan expresses its strong support of these policy actions.

Bank of Canada lowers overnight rate target by 1/2 percentage point to 2 1/2 per cent

The Bank of Canada today announced that it is lowering its target for the overnight rate by 1/2 percentage point to 2 1/2 per cent. The operating band for the overnight rate is correspondingly lowered, and the Bank Rate is now 2 3/4 per cent.

So Prime and the Bank of Canada rate have now decoupled … the potential for this was discussed in PrefBlog on January 16.

It will be most interesting to see what the other banks do … will they seek to maintain their margins and follow TD? Or will they go after market share and follow the Bank?

Update: Margins it is!

CIBC, Royal Bank of Canada, Scotiabank and Bank of Montreal soon followed, saying they would cut their prime by a quarter point as well to 4.5 per cent from 4.75 per cent, effective Thursday.

Posted in Banking Crisis 2008, Canada Prime | 3 Comments »

October 7, 2008

October 7th, 2008

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.

Note that these indices are experimental; the absolute and relative daily values are expected to change in the final version. In this version, index values are based at 1,000.0 on 2006-6-30.
The Fixed-Reset index was added effective 2008-9-5 at that day’s closing value of 1,119.4 for the Fixed-Floater index.
Index Mean Current Yield (at bid) Mean YTW Mean Average Trading Value Mean Mod Dur (YTW) Issues Day’s Perf. Index Value
Ratchet N/A N/A N/A N/A 0 N/A N/A
Fixed-Floater 5.07% 5.26% 78,171 15.23 6 -3.2842% 1,016.10
Floater 6.23% 6.29% 49,274 13.51 2 -10.1215% 646.5
Op. Retract 5.28% 5.98% 124,524 3.82 14 -1.7919% 995.2
Split-Share 6.14% 9.81% 57,458 4.06 12 -1.3550% 919.8
Interest Bearing 6.82% 8.83% 42,864 3.64 3 -0.8202% 1,013.7
Perpetual-Premium 6.36% 6.41% 54,973 13.30 1 +1.1537% 975.1
Perpetual-Discount 6.56% 6.63% 176,835 13.06 70 -0.9966% 819.2
Fixed-Reset 5.21% 5.07% 1,082.323 15.26 10 +0.6686% 1,096.7
Major Price Changes
Issue Index Change Notes
BAM.PR.I OpRet -12.9565% (!!!) Unbelievable. Now with a pre-tax bid-YTW of 10.67% based on a bid of 20.02 and a softMaturity 2013-12-30 at 25.00. Compare with BAM.PR.H (9.22% to 2012-3-30), BAM.PR.J (10.68% to 2018-3-30) and BAM.PR.O (10.27% to 2013-6-30); and with the perpetuals at 8.58% and 9.03%.
BNA.PR.A SplitShare -12.2414% Asset coverage of 3.2+:1 as of August 31 according to the company. Coverage now of 2.3+:1 based on BAM.A at 24.05 and 2.4 BAM.A held per preferred. Now with a pre-tax bid-YTW of 18.31% (!) based on a bid of 20.36 and a hardMaturity 2010-9-30 at 25.00. Compare with BNA.PR.B (11.33% to 2016-3-25) and BNA.PR.C (12.07% to 2019-1-10). Unlike yesterday and the BNA.PR.B, the closing quote of 20.36-21.60, 2×2, is actually realistic on the bid side. After a trade at 21.04 at 1:14pm, some guy sold 1900 shares at 20.03 at 1:40pm, and the closing trade at 3:45pm was at 20.15. Incredible. I thought – still! even after all the horrors of 2008 – that you had to be on the brink of bankruptcy, with high leverage funded by short-term paper, to trade like this.
BAM.PR.B Floater -12.2000% Well, the floaters have to get in on the action too, don’t they?
W.PR.H PerpetualDiscount -8.8557% Commodities are going out of style! Now with a pre-tax bid-YTW of 7.56% based on a bid of 18.32 and a limitMaturity. Several smallish trades below the closing bid in the last two hours of trading.
BAM.PR.K Floater -8.0952%  
BAM.PR.J OpRet -8.0423% See BAM.PR.I, above.
BAM.PR.N PerpetualDiscount -7.9530% Now with a pre-tax bid-YTW of 9.04% based on a bid of 13.31 and a limitMaturity.
BCE.PR.I FixFloat -7.7021%  
GWO.PR.G PerpetualDiscount -6.6421% Now with a pre-tax bid-YTW of 7.42% based on a bid of 17.71 and a limitMaturity.
LBS.PR.A SplitShare -6.0674% Asset coverage of just under 2.0:1 as of October 2, according to Brompton Group. Now with a pre-tax bid-YTW of 9.37% based on a bid of 8.36 and a hardMaturity 2013-11-29. The capital units are at a premium, making a monthly retraction a speculative proposition, but the annual retraction is at the end of November.
BCE.PR.Z FixFloat -5.4759%  
FIG.PR.A InterestBearing -5.4054% Asset coverage of 1.6+:1 as of October 3, according to Faircourt. Now with a pre-tax bid-YTW of 9.01% based on a bid of 8.75 and a hardMaturity 2014-12-31 at 10.00.
BAM.PR.M PerpetualDiscount -5.0169% Now with a pre-tax bid-YTW of 8.58% based on a bid of 14.01 and a limitMaturity.
BMO.PR.H PerpetualDiscount -4.6190% Now with a pre-tax bid-YTW of 6.73% based on a bid of 20.03 and a limitMaturity.
BAM.PR.H OpRet -4.4492% See BAM.PR.I, above.
POW.PR.B PerpetualDiscount -4.0701% Now with a pre-tax bid-YTW of 7.23% based on a bid of 18.62 and a limitMaturity.
BAM.PR.O OpRet -3.5714% Now with a pre-tax bid-YTW of 10.2660% based on a bid of 20.25 and a limitMaturity.
CU.PR.A PerpetualDiscount -3.4869% Now with a pre-tax bid-YTW of 6.32% based on a bid of 23.25 and a limitMaturity.
BCE.PR.C FixFloat -3.2609%  
PWF.PR.F PerpetualDiscount -3.2379% Now with a pre-tax bid-YTW of 6.51% based on a bid of 20.62 and a limitMaturity.
BCE.PR.A FixFloat -3.1250%  
CM.PR.J PerpetualDiscount -3.1250% Now with a pre-tax bid-YTW of 7.29% based on a bid of 15.50 and a limitMaturity.
CM.PR.P PerpetualDiscount -3.1008% Now with a pre-tax bid-YTW of 7.36% based on a bid of 18.75 and a limitMaturity.
POW.PR.A PerpetualDiscount -2.9907% Now with a pre-tax bid-YTW of 6.79% based on a bid of 20.76 and a limitMaturity.
CM.PR.I PerpetualDiscount -2.9500% Now with a pre-tax bid-YTW of 7.32% based on a bid of 16.12 and a limitMaturity.
NA.PR.L PerpetualDiscount -2.9255% Now with a pre-tax bid-YTW of 6.77% based on a bid of 18.25 and a limitMaturity.
BNS.PR.L PerpetualDiscount -2.8571% Now with a pre-tax bid-YTW of 6.14% based on a bid of 18.36 and a limitMaturity.
W.PR.J PerpetualDiscount -2.7490% Now with a pre-tax bid-YTW of 7.52% based on a bid of 18.75 and a limitMaturity.
BNS.PR.K PerpetualDiscount -2.6290% Now with a pre-tax bid-YTW of 6.02% based on a bid of 20.00 and a limitMaturity.
HSB.PR.C PerpetualDiscount -2.5974% Now with a pre-tax bid-YTW of 6.87% based on a bid of 18.75 and a limitMaturity.
FBS.PR.B SplitShare -2.2198% Asset coverage of 1.5+:1 as of October 2, according to TD Securities. Now with a pre-tax bid-YTW of 9.31% based on a bid of 8.81 and a hardMaturity 2011-12-15 at 10.00. Perhaps in an effort to halt the carnage, the fund announced a dividend increase for the capital units today; let’s see … FBS.B closed at 4.90; FBS.PR.B closed at 8.80; NAV $15.07 as of October 2; Special Annual Retraction in December …. hmmm ….
TD.PR.R PerpetualDiscount -2.1268% Now with a pre-tax bid-YTW of 6.09% based on a bid of 23.01 and a limitMaturity.
POW.PR.D PerpetualDiscount -2.0219% Now with a pre-tax bid-YTW of 7.02% based on a bid of 17.93 and a limitMaturity.
NA.PR.K PerpetualDiscount -1.9956% Now with a pre-tax bid-YTW of 6.73% based on a bid of 22.10 and a limitMaturity.
GWO.PR.I PerpetualDiscount -1.8282% Now with a pre-tax bid-YTW of 7.06% based on a bid of 16.11 and a limitMaturity.
DFN.PR.A SplitShare -1.7281% Asset coverage of just under 2.2:1 as of September 30, according to the company. Now with a pre-tax bid-YTW of 8.45% based on a bid of 8.53 and a hardMaturity 2014-12-1 at 10.00.
CM.PR.H PerpetualDiscount -1.7178% Now with a pre-tax bid-YTW of 7.52% based on a bid of 16.02 and a limitMaturity.
PWF.PR.E PerpetualDiscount -1.5549% Now with a pre-tax bid-YTW of 6.32% based on a bid of 22.16 and a limitMaturity.
BNS.PR.O PerpetualDiscount -1.4799% Now with a pre-tax bid-YTW of 6.02% based on a bid of 23.30 and a limitMaturity.
RY.PR.F PerpetualDiscount -1.3514% Now with a pre-tax bid-YTW of 6.46% based on a bid of 17.25 and a limitMaturity.
PWF.PR.K PerpetualDiscount -1.2880% Now with a pre-tax bid-YTW of 6.60% based on a bid of 19.16 and a limitMaturity.
CM.PR.D PerpetualDiscount -1.2500% Now with a pre-tax bid-YTW of 7.31% based on a bid of 19.75 and a limitMaturity.
BNS.PR.N PerpetualDiscount -1.1807% Now with a pre-tax bid-YTW of 6.04% based on a bid of 21.76 and a limitMaturity.
BNS.PR.J PerpetualDiscount -1.1358% Now with a pre-tax bid-YTW of 6.03% based on a bid of 21.76 and a limitMaturity.
BCE.PR.R FixFloat -1.0753%  
BNS.PR.Q FixedReset -1.0717%  
BCE.PR.Y FixFloat -1.0638%  
PWF.PR.L PerpetualDiscount +1.0842% Now with a pre-tax bid-YTW of 6.66% based on a bid of 19.58 and a limitMaturity.
CL.PR.B PerpetualPremium (for now!) +1.1537% Now with a pre-tax bid-YTW of 6.41% based on a bid of 24.55 and a limitMaturity.
CM.PR.E PerpetualDiscount +1.1873% Now with a pre-tax bid-YTW of 7.50% based on a bid of 18.75 and a limitMaturity.
BSD.PR.A InterestBearing +1.2346% Asset coverage of just under 1.3:1 as of October 3, according to Brookfield Funds. The asset coverage implies no more distributions to capital units. Now with a pre-tax bid-YTW of 10.00% based on a bid of 8.20 and a hardMaturity 2015-3-31 at 10.00.
PWF.PR.G PerpetualDiscount +1.3130% Now with a pre-tax bid-YTW of 6.28% based on a bid of 23.92 and a limitMaturity.
SLF.PR.D PerpetualDiscount +1.3629% Now with a pre-tax bid-YTW of 6.29% based on a bid of 17.85 and a limitMaturity.
ELF.PR.F PerpetualDiscount +1.4320% Now with a pre-tax bid-YTW of 7.85% based on a bid of 17.00 and a limitMaturity.
BNA.PR.C SplitShare +1.4493% See BNA.PR.A, above.
ELF.PR.G PerpetualDiscount +1.5303% Now with a pre-tax bid-YTW of 7.83% based on a bid of 15.26 and a limitMaturity.
STW.PR.A InterestBearing +1.5544% Asset coverage of just under 1.7:1 as of September 25, according to Middlefield. Now with a pre-tax bid-YTW of 7.68% (mostly as interest) based on a bid of 9.80 and a hardMaturity 2009-12-31.
MFC.PR.C PerpetualDiscount +1.6375% Now with a pre-tax bid-YTW of 6.32% based on a bid of 18.00 and a limitMaturity.
CIU.PR.A PerpetualDiscount +1.9553% Now with a pre-tax bid-YTW of 6.40% based on a bid of 18.25 and a limitMaturity.
PWF.PR.H PerpetualDiscount +2.0316% Now with a pre-tax bid-YTW of 6.49% based on a bid of 22.60 and a limitMaturity.
CM.PR.R OpRet +2.0408% Now with a pre-tax bid-YTW of 5.03% based on a bid of 25.00 and a softMaturity 2013-4-29 at 25.00.
PWF.PR.I PerpetualDiscount +2.4086% Now with a pre-tax bid-YTW of 6.43% based on a bid of 23.81 and a limitMaturity.
IAG.PR.A PerpetualDiscount +2.8807% Now with a pre-tax bid-YTW of 6.64% based on a bid of 17.50 and a limitMaturity.
BNA.PR.B SplitShare +4.6582% See BNA.PR.A, above.
NA.PR.N FixedReset +8.8405% Mostly reverses yesterday’s nonsense.
Volume Highlights
Issue Index Volume Notes
GWO.PR.F PerpetualDiscount 72,155 Anonymous crossed 67,300 at 25.00 … unless they were different anonymice! Now with a pre-tax bid-YTW of 6.00% based on a bid of 24.76 and a limitMaturity.
CM.PR.A OpRet 39,090 Nesbitt crossed 36,000 at 25.25. Now with a pre-tax bid-YTW of 5.22% based on a bid of 25.00 and a softMaturity 2011-7-30 at 25.00.
CM.PR.E PerpetualDiscount 34,500 TD crossed 25,000 at 18.95. Now with a pre-tax bid-YTW of 7.50% based on a bid of 18.75 and a limitMaturity.
BNS.PR.R FixedReset 34,325 RBC bought 10,000 at 24.45 from Scotia.
CM.PR.H PerpetualDiscount 29,735 Now with a pre-tax bid-YTW of 7.52% based on a bid of 16.02 and a limitMaturity.

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

Posted in Market Action | 8 Comments »

October 6, 2008

October 6th, 2008

Total, Utter Carnage:

Canadian stocks fell, sending the main index to the lowest in three years, as commodity producers slid on concern their profits will be hurt by a global recession.
…
The S&P/TSX fell 5.3 percent to 10,230.43 in Toronto and earlier slid 11 percent for its biggest intraday drop since the “Black Monday” crash of Oct. 19, 1987. Canada’s main index is trading at the lowest level since October 2005, having fallen 32 percent from its June 18 record. All 10 industry groups in the S&P/TSX retreated today as 13 stocks out of 244 rose in Toronto.

Preferred Shares were not immune, with the TXPR down 1.71% compared to the TSX’s 5.30%. PerpetualDiscounts had their worst single day since I started doing these indices 2006-6-30 … the second worst day was a loss of a mere 2.183%. They closed with a weighted-mean average pre-tax bid-YTW of 6.56%, equivalent to 9.18% interest at the standard 1.4x factor. Long corporates closed with a yield of about 6.7%, so the spread is now about 248bp. The recent peak in PerpetualDiscount yield was 6.63% on July 16.

Volume wasn’t particularly heavy today, but there were quite a few SplitShare preferreds trading well above average volumes. Bid-Ask spreads were enormous, and the market is very, very sloppy.

We will see what tomorrow brings!

Note that these indices are experimental; the absolute and relative daily values are expected to change in the final version. In this version, index values are based at 1,000.0 on 2006-6-30.
The Fixed-Reset index was added effective 2008-9-5 at that day’s closing value of 1,119.4 for the Fixed-Floater index.
Index Mean Current Yield (at bid) Mean YTW Mean Average Trading Value Mean Mod Dur (YTW) Issues Day’s Perf. Index Value
Ratchet N/A N/A N/A N/A 0 N/A N/A
Fixed-Floater 4.90% 5.03% 79,903 15.48 6 -1.0852% 1,050.6
Floater 5.60% 5.64% 49,408 14.47 2 -3.4386% 719.3
Op. Retract 5.18% 5.62% 124,524 3.68 14 -1.1827% 1,013.4
Split-Share 6.04% 9.07% 57,254 4.04 12 -3.2975% 932.4
Interest Bearing 6.76% 8.99% 43,738 3.68 3 -4.6180% 1,022.1
Perpetual-Premium 6.44% 6.48% 55,467 13.20 1 -1.6613% 964.0
Perpetual-Discount 6.49% 6.56% 178,147 13.15 70 -2.6004% 827.5
Fixed-Reset 5.24% 5.10% 1,109,234 15.21 10 -0.9498% 1,089.4
Major Price Changes
Issue Index Change Notes
BNA.PR.B SplitShare -12.5397% Asset coverage of 3.2+:1 as of August 31 according to the company. Coverage now of 2.4+:1 based on BAM.A at 25.27 and 2.4 BAM.A held per preferred. Now with a pre-tax bid-YTW of 12.13% (!) based on a bid of 16.53 and a hardMaturity 2016-3-25 at 25.00. Compare with BNA.PR.A (10.75% to 2010-9-30) and BNA.PR.C (12.27% to 2019-1-10). As with much else today, this one looks worse than it is … the closing quote was 16.53-17.49, 2×1, but the day’s low was 17.00 … which was still way worse than the previous 52-week low of 18.75. The underlying security of this split share, BAM.A, actually outperformed other equities today, down a mere 3.40%.
NA.PR.N FixedReset -9.9600% One of the Toronto Stock Exchange’s favourite quotes, 22.51-25.09. Low for the day was 25.00.
GWO.PR.G PerpetualDiscount -7.9126% Now with a pre-tax bid-YTW of 6.92% based on a bid of 18.97 and a limitMaturity.
BSD.PR.A InterestBearing -7.5342% Asset coverage of just under 1.3:1 as of October 3, according to Brookfield Funds. The asset coverage implies no more distributions to capital units. Now with a pre-tax bid-YTW of 10.24% based on a bid of 8.10 and a hardMaturity 2015-3-31 at 10.00.
BNA.PR.C SplitShare -7.1332% See BNA.PR.B, above
CIU.PR.A PerpetualDiscount -6.7708% Now with a pre-tax bid-YTW of 6.52% based on a bid of 17.90 and a limitMaturity.
WFS.PR.A SplitShare -6.2718% Asset coverage of 1.5+:1 as of September 30, according to Mulvihill. Now with a pre-tax bid-YTW of 14.16% based on a bid of 8.07 and a hardMaturity 2011-6-30. Below $9, some might find even the regular monthly retraction to be attractive.
MFC.PR.C PerpetualDiscount -6.0477% Now with a pre-tax bid-YTW of 6.43% based on a bid of 17.71 and a limitMaturity.
W.PR.J PerpetualDiscount -5.9512% Now with a pre-tax bid-YTW of 7.31% based on a bid of 19.28 and a limitMaturity.
BAM.PR.N PerpetualDiscount -5.7980% Now with a pre-tax bid-YTW of 8.31% based on a bid of 14.46 and a limitMaturity.
CM.PR.E PerpetualDiscount -4.9744% Now with a pre-tax bid-YTW of 7.59% based on a bid of 18.53 and a limitMaturity.
PWF.PR.I PerpetualDiscount -4.9469% Now with a pre-tax bid-YTW of 6.58% based on a bid of 23.25 and a limitMaturity.
TD.PR.N OpRet -4.8573% Now with a pre-tax bid-YTW of 5.39% based on a bid of 24.05 and a softMaturity 2014-1-30 … but don’t get your hopes up! The closing quote was 24.05-25.49, 7×20, and the low for the day was 25.50.
BAM.PR.M PerpetualDiscount -4.8387% Now with a pre-tax bid-YTW of 8.14% based on a bid of 14.75 and a limitMaturity.
CM.PR.H PerpetualDiscount -4.6226% Now with a pre-tax bid-YTW of 7.39% based on a bid of 16.30 and a limitMaturity.
ELF.PR.G PerpetualDiscount -4.5714% Now with a pre-tax bid-YTW of 7.96% based on a bid of 15.03 and a limitMaturity.
PWF.PR.H PerpetualDiscount -4.3197% Now with a pre-tax bid-YTW of 6.62% based on a bid of 22.15 and a limitMaturity.
BAM.PR.K Floater -4.2969%  
NA.PR.M PerpetualDiscount -4.2289% Now with a pre-tax bid-YTW of 6.61% based on a bid of 23.10 and a limitMaturity.
FIG.PR.A InterestBearing -4.1451% Asset coverage of 1.6+:1 as of October 3, according to Faircourt. Now with a pre-tax bid-YTW of 7.88% based on a bid of 9.25 and a hardMaturity 2014-12-31 at 10.00.
NA.PR.L PerpetualDiscount -4.0795% Now with a pre-tax bid-YTW of 7.69% based on a bid of 18.80 and a limitMaturity.
LFE.PR.A SplitShare -4.0795% Asset coverage of 2.2+:1 as of September 15 according to the company. Now with a pre-tax bid-YTW of 7.69% based on a bid of 9.17 and a hardMaturity 2012-12-1 at 10.00
BNS.PR.M PerpetualDiscount -3.9256% Now with a pre-tax bid-YTW of 6.07% based on a bid of 18.60 and a limitMaturity.
PWF.PR.L PerpetualDiscount -3.8710% Now with a pre-tax bid-YTW of 6.73% based on a bid of 19.37 and a limitMaturity.
GWO.PR.I PerpetualDiscount -3.8101% Now with a pre-tax bid-YTW of 6.92% based on a bid of 16.41 and a limitMaturity.
CM.PR.G PerpetualDiscount -3.6979% Now with a pre-tax bid-YTW of 7.33% based on a bid of 18.49 and a limitMaturity.
ELF.PR.F PerpetualDiscount -3.4562% Now with a pre-tax bid-YTW of 7.96% based on a bid of 16.76 and a limitMaturity.
BNS.PR.J PerpetualDiscount -3.2953% Now with a pre-tax bid-YTW of 5.96% based on a bid of 22.01 and a limitMaturity.
DFN.PR.A SplitShare -3.2330% Asset coverage of just under 2.2:1 as of September 30, according to the company. Now with a pre-tax bid-YTW of 8.09% based on a bid of 8.68 and a hardMaturity 2014-12-1 at 10.00.
BMO.PR.K PerpetualDiscount -3.1175% Now with a pre-tax bid-YTW of 6.61% based on a bid of 20.20 and a limitMaturity.
PWF.PR.F PerpetualDiscount -3.0923% Now with a pre-tax bid-YTW of 6.29% based on a bid of 21.31 and a limitMaturity.
BNS.PR.L PerpetualDiscount -3.0769% Now with a pre-tax bid-YTW of 5.97% based on a bid of 18.90 and a limitMaturity.
NA.PR.K PerpetualDiscount -3.0108% Now with a pre-tax bid-YTW of 6.60% based on a bid of 22.55 and a limitMaturity.
HSB.PR.D PerpetualDiscount -2.8871% Now with a pre-tax bid-YTW of 6.82% based on a bid of 18.50 and a limitMaturity.
TD.PR.Q PerpetualDiscount -2.8807% Now with a pre-tax bid-YTW of 6.03% based on a bid of 23.25 and a limitMaturity.
BAM.PR.H OpRet -2.8807% Now with a pre-tax bid-YTW of 7.71% based on a bid of 23.60 and a softMaturity 2012-3-30 at 25.00. Compare with BAM.PR.I (7.45% to 2013-12-30), BAM.PR.J (9.43% to 2018-3-30) and BAM.PR.O (9.35% to 2013-6-30); and with the perpetuals at 8.14% and 8.31%.
CM.PR.I PerpetualDiscount -2.8655% Now with a pre-tax bid-YTW of 7.10% based on a bid of 16.61 and a limitMaturity.
TD.PR.O PerpetualDiscount -2.8629% Now with a pre-tax bid-YTW of 6.31% based on a bid of 19.27 and a limitMaturity.
POW.PR.A PerpetualDiscount -2.7715% Now with a pre-tax bid-YTW of 6.58% based on a bid of 21.40 and a limitMaturity.
TCA.PR.X PerpetualDiscount -2.6661% Now with a pre-tax bid-YTW of 6.17% based on a bid of 45.27 and a limitMaturity.
STW.PR.A InterestBearing -2.6236% Asset coverage of just under 1.7:1 as of September 25, according to Middlefield. Now with a pre-tax bid-YTW of 9.00% (mostly as interest) based on a bid of 9.65 and a hardMaturity 2009-12-31.
SLF.PR.C PerpetualDiscount -2.6111% Now with a pre-tax bid-YTW of 6.40% based on a bid of 17.53 and a limitMaturity.
RY.PR.W PerpetualDiscount -2.6091% Now with a pre-tax bid-YTW of 6.42% based on a bid of 19.41 and a limitMaturity.
BAM.PR.B Floater -2.5974%  
FBS.PR.B SplitShare -2.5946% Asset coverage of 1.5+:1 as of October 2, according to TD Securities. Now with a pre-tax bid-YTW of 8.51% based on a bid of 9.01 and a hardMaturity 2011-12-15 at 10.00.
BNS.PR.N PerpetualDiscount -2.5232% Now with a pre-tax bid-YTW of 5.97% based on a bid of 22.02 and a limitMaturity.
FFN.PR.A SplitShare -2.5200% Asset coverage of 1.8+:1 as of September 30, according to the company. Now with a pre-tax bid-YTW of 8.49% based on a bid of 8.51 and a hardMaturity 2014-12-1 at 10.00.
POW.PR.C PerpetualDiscount -2.4537% Now with a pre-tax bid-YTW of 6.93% based on a bid of 21.07 and a limitMaturity.
POW.PR.B PerpetualDiscount -2.3642% Now with a pre-tax bid-YTW of 6.94% based on a bid of 19.41 and a limitMaturity.
BMO.PR.L PerpetualDiscount -2.3555% Now with a pre-tax bid-YTW of 6.46% based on a bid of 22.80 and a limitMaturity.
BCE.PR.C FixFloat -2.3355%  
BCE.PR.Y Ratchet -2.2869%  
BNS.PR.O PerpetualDiscount -2.2727% Now with a pre-tax bid-YTW of 5.92% based on a bid of 23.65 and a limitMaturity.
CU.PR.A PerpetualDiscount -2.2718% Now with a pre-tax bid-YTW of 6.09% based on a bid of 24.09 and a limitMaturity.
CM.PR.R OpRet -2.2346% Now with a pre-tax bid-YTW of 5.53% based on a bid of 24.50 and a softMaturity 2013-4-29 at 25.00.
BNS.PR.K PerpetualDiscount -2.1905% Now with a pre-tax bid-YTW of 5.86% based on a bid of 20.54 and a limitMaturity.
ENB.PR.A PerpetualDiscount -2.1702% Now with a pre-tax bid-YTW of 6.05% based on a bid of 22.99 and a limitMaturity.
RY.PR.H PerpetualDiscount -2.1413% Now with a pre-tax bid-YTW of 6.28% based on a bid of 22.85 and a limitMaturity.
CM.PR.J PerpetualDiscount -2.1407% Now with a pre-tax bid-YTW of 7.06% based on a bid of 16.00 and a limitMaturity.
MFC.PR.B PerpetualDiscount -2.1399% Now with a pre-tax bid-YTW of 6.27% based on a bid of 18.75 and a limitMaturity.
BCE.PR.G FixFloat -2.1304%  
SLF.PR.E PerpetualDiscount -2.1217% Now with a pre-tax bid-YTW of 6.48% based on a bid of 17.53 and a limitMaturity.
SLF.PR.A PerpetualDiscount -2.0931% Now with a pre-tax bid-YTW of 6.41% based on a bid of 18.71 and a limitMaturity.
CU.PR.B PerpetualDiscount -2.0808% Now with a pre-tax bid-YTW of 6.33% based on a bid of 24.00 and a limitMaturity.
BAM.PR.J OpRet -2.0725% See BAM.PR.I, above
SLF.PR.B PerpetualDiscount -2.0608% Now with a pre-tax bid-YTW of 6.37% based on a bid of 19.01 and a limitMaturity.
PWF.PR.K PerpetualDiscount -2.0192% Now with a pre-tax bid-YTW of 6.52% based on a bid of 19.41 and a limitMaturity.
BNS.PR.R FixedReset -2.0161%  
PWF.PR.G PerpetualDiscount -1.9925% Now with a pre-tax bid-YTW of 6.37% based on a bid of 23.61 and a limitMaturity.
BNA.PR.A SplitShare -1.9027% See BNA.PR.B, above.
RY.PR.E PerpetualDiscount -1.8681% Now with a pre-tax bid-YTW of 6.41% based on a bid of 17.86 and a limitMaturity.
RY.PR.G PerpetualDiscount -1.8428% Now with a pre-tax bid-YTW of 6.32% based on a bid of 18.11 and a limitMaturity.
RY.PR.A PerpetualDiscount -1.7709% Now with a pre-tax bid-YTW of 6.37% based on a bid of 17.75 and a limitMaturity.
PWF.PR.E PerpetualDiscount -1.7460% Now with a pre-tax bid-YTW of 6.21% based on a bid of 22.51 and a limitMaturity.
RY.PR.B PerpetualDiscount -1.7223% Now with a pre-tax bid-YTW of 6.35% based on a bid of 18.83 and a limitMaturity.
CM.PR.D PerpetualDiscount -1.7199% Now with a pre-tax bid-YTW of 7.22% based on a bid of 20.00 and a limitMaturity.
TCA.PR.Y PerpetualDiscount -1.7186% Now with a pre-tax bid-YTW of 6.10% based on a bid of 45.75 and a limitMaturity.
BMO.PR.J PerpetualDiscount -1.6835% Now with a pre-tax bid-YTW of 6.53% based on a bid of 17.52 and a limitMaturity.
CL.PR.B PerpetualPremium (for now!) -1.6613% Now with a pre-tax bid-YTW of 6.48% based on a bid of 24.27 and a limitMaturity.
RY.PR.F PerpetualDiscount -1.6611% Now with a pre-tax bid-YTW of 6.37% based on a bid of 17.76 and a limitMaturity.
LBS.PR.A SplitShare -1.6575% Asset coverage of just under 2.0:1 as of October 2, according to Brompton Group. Now with a pre-tax bid-YTW of 7.91% based on a bid of 8.90 and a hardMaturity 2013-11-29. The capital units are at a premium, making a monthly retraction a speculative proposition, but the annual retraction is at the end of November.
TD.PR.R PerpetualDiscount -1.6488% Now with a pre-tax bid-YTW of 5.96% based on a bid of 23.51 and a limitMaturity.
GWO.PR.H PerpetualDiscount -1.6393% Now with a pre-tax bid-YTW of 6.80% based on a bid of 18.00 and a limitMaturity.
RY.PR.C PerpetualDiscount -1.5781% Now with a pre-tax bid-YTW of 6.25% based on a bid of 18.71 and a limitMaturity.
TD.PR.A FixedReset -1.5385%  
HSB.PR.C PerpetualDiscount -1.4337% Now with a pre-tax bid-YTW of 6.69% based on a bid of 19.25 and a limitMaturity.
BAM.PR.O OpRet -1.4085% See BAM.PR.H, above.
BAM.PR.I OpRet -1.1603% See BAM.PR.H, above.
FTN.PR.A SplitShare -1.1099% Asset coverage of 2.2+:1 as of September 30 according to the company. Now with a pre-tax bid-YTW of 7.30% based on a bid of 8.91 and a hardMaturity 2014-12-1 at 10.00. The capital unit closed at 9.30, and the Special Annual Concurrent Retraction is this month … so it might be worth checking out this possibility.
RY.PR.D PerpetualDiscount -1.0923% Now with a pre-tax bid-YTW of 6.32% based on a bid of 18.11 and a limitMaturity.
BCE.PR.Z FixFloat -1.0748%  
BCE.PR.R FixFloat -1.0638%  
PWF.PR.J OpRet -1.0580% Now with a pre-tax bid-YTW of 4.69% based on a bid of 25.25 and a softMaturity 2013-7-30 at 25.00.
TD.PR.P PerpetualDiscount +1.1669% Now with a pre-tax bid-YTW of 5.96% based on a bid of 22.05 and a limitMaturity.
TD.PR.Y FixedReset +1.4633%  
IAG.PR.A PerpetualDiscount +1.4916% Now with a pre-tax bid-YTW of 6.83% based on a bid of 17.01 and a limitMaturity.
TD.PR.S FixedReset +3.225%  
Volume Highlights
Issue Index Volume Notes
GWO.PR.F PerpetualDiscount 61,741 National Bank crossed 10,000 at 25.00, then bought 15,000 from anonymous at the same price. Now with a pre-tax bid-YTW of 6.00% based on a bid of 24.76 and a limitMaturity.
SLF.PR.E PerpetualDiscount 56,975 Nesbitt crossed 50,000 at 17.75. Now with a pre-tax bid-YTW of 6.48% based on a bid of 17.53 and a limitMaturity.
BNS.PR.P FixedReset 47,740 Nesbitt crossed 42,300 at 24.70
MFC.PR.A OpRet 32,570 CIBC crossed 25,000 at 25.00. Now with a pre-tax bid-YTW of 4.31% based on a bid of 24.76 and a softMaturity 2015-12-18 at 25.00.
BNS.PR.L PerpetualDiscount 30,200 Anonymous crossed 10,000 at 19.00 … unless it was two different anonymice. Now with a pre-tax bid-YTW of 5.97% based on a bid of 18.90 and a limitMaturity.

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

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IIAC Releases 2Q08 Debt Report

October 6th, 2008

The Investment Industry Association of Canada has released An Issue of Debt 2Q08 – statistics on issuance and trading in Canadian debt markets.

Of interest is the issuance of Maple bonds (issued by foreign companies in Canadian currency):

Corporate issuance remained lofty in Q2, despite widening credit spreads experienced early in the quarter. Financings totaled $24 billion with over 60% of issuance deriving from the financial sector— an increase of 33% from Q1 but still off the pace with last year’s figures (Chart 1). The pull back has largely been attributed to the lack of Maple bond offerings thus far in 2008. For the first half of 2008, Maple bond issuance has totaled just $500 million as compared to over $23 billion during the same period in 2007 (Chart 2).

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MAPF Performance: September 2008

October 5th, 2008

The fund underperfomed its benchmark in September, but strongly outperformed the index over the quarter. As an investor, I can’t say I like the volatility any more than my clients do, but as an investment manager I have to say that the immense volatility of the market is leading to most unusual trading opportunities.

The fund’s price at September 30 was $8.1886, after a distribution of $0.168825 per unit, after expenses, but before fees (which are billed individually to each client).

Returns to September 30, 2008
Period MAPF Index
One Month -3.13% -2.59%
Three Months +0.19% -1.88%
One Year -3.72% -6.64%
Two Years (annualized) -1.31% -4.36%
Three Years (annualized) +1.06% -1.64%
Four Years (annualized) +2.53% +0.04%
Five Years (annualized) +5.01% +1.01%
Six Years (annualized) +9.07% +2.02%
Seven Years (annualized) +6.97% +2.20%
The Index is the BMO-CM “50”

Returns assume reinvestment of dividends, and are shown after expenses but before fees. Past performance is not a guarantee of future performance. You can lose money investing in Malachite Aggressive Preferred Fund or any other fund. For more information, see the fund’s main page.

The yields available on high quality preferred shares remain elevated, which is reflected in the current estimate of sustainable income.

Calculation of MAPF Sustainable Income Per Unit
Month NAVPU Portfolio
Average
YTW		 Leverage
Divisor		 Securities
Average
YTW		 Sustainable
Income
June, 2007 9.3114 5.16% 1.03 5.01% 0.4665
September 9.1489 5.35% 0.98 5.46% 0.4995
December, 2007 9.0070 5.53% 0.942 5.87% 0.5288
March, 2008 8.8512 6.17% 1.047 5.89% 0.5216
June 8.3419 6.034% 0.952 6.338% $0.5287
September, 2008 8.1886 7.108% 0.969 7.335% $0.6006
NAVPU is shown after quarterly distributions.
“Portfolio YTW” includes cash (or margin borrowing), with an assumed interest rate of 0.00%
“Securities YTW” divides “Portfolio YTW” by the “Leverage Divisor” to show the average YTW on the securities held; this assumes that the cash is invested in (or raised from) all securities held, in proportion to their holdings.
“Sustainable Income” is the best available estimate of the fund’s dividend income per unit, before fees and expenses.

The fund has positions in two “Split Share” preferreds – terribly out of fashion at this time and trading at yields higher than the perpetuals – which, as explained last month results in the calculation being rendered somewhat suspect. If these positions were sold – at the closing bid on 9/30 – and the proceeds reinvested in rest of the portfolio, the resultant portfolio would yield 6.608% and the estimated sustainable dividend per unit (before fees and expenses) would be $0.5411; significantly less than the figure calculated above, but still an increase from last month’s adjusted figure and continuing the long-term upward trend.

It will be noted that if there was no trading in the portfolio, one would expect the sustainable yield to be constant (before fees and expenses). The success of the fund’s trading is showing up in

  • the very good performance against the index
  • the long term increases in sustainable income per unit

At some point – and I won’t guess when that time will be! – the market will cease its decline and, probably, return to its normal levels of between 100bp and 150bp above long term corporates, which in turn will return to more normal levels against long term Canadas. At the moment, however, people are scared, the market is sloppy and trading opportunities abound.

More later.

Update, 2008-10-19: I note that according to Claymore the performance of CPD – as measured by its NAV – was -8.38% in the year to September 30. This figure is net of all fees and expenses; but is significantly worse than the actively traded MAPF.

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Cassandra's Reward

October 5th, 2008

Via Dealbreaker and Alea, a fascinating look at Freddie Mac’s contribution to the housing bubble:

For two years, Mr. Mudd operated without a permanent chief risk officer to guard against unhealthy hazards. When Enrico Dallavecchia was hired for that position in 2006, he told Mr. Mudd that the company should be charging more to handle risky loans.

In the following months to come, Mr. Dallavecchia warned that some markets were becoming overheated and argued that a housing bubble had formed, according to a person with knowledge of the conversations. But many of the warnings were rebuffed.

Mr. Mudd told Mr. Dallavecchia that the market, shareholders and Congress all thought the companies should be taking more risks, not fewer, according to a person who observed the conversation. “Who am I supposed to fight with first?” Mr. Mudd asked.

In the interview, Mr. Mudd said he never made those comments. Mr. Dallavecchia was among those whom Mr. Mudd forced out of the company during a reorganization in August.

Well … who knows who said what to whom when. But I’ll bet that all the internal memoranda are made public with the next few years and will be very interesting.

Another revealing quote from the article is:

“When homes are doubling in price in every six years and incomes are increasing by a mere one percent per year, Fannie’s mission is of paramount importance,” Senator Jack Reed, a Rhode Island Democrat, lectured Mr. Mudd at a Congressional hearing in 2006. “In fact, Fannie and Freddie can do more, a lot more.”

Um … demand destruction is the market’s role. Once a government gets into the business of distorting a market’s price signals, watch out! A recent example of the US government getting it right was leaving oil prices alone … they fell quickly enough when it became clear that US consumers were adjusting their behaviour to use less.

Posted in Sub-Prime! | No Comments »

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