June 12, 2008

June 12th, 2008

Sorry about the terse nature of these posts, folks.

Another poor day for preferreds, as been previously mentioned; SunLife issues were yet again among the badly hurt.

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
Index Mean Current Yield (at bid) Mean YTW Mean Average Trading Value Mean Mod Dur (YTW) Issues Day’s Perf. Index Value
Ratchet 4.14% 3.86% 51,724 0.08 1 +0.1182% 1,114.1
Fixed-Floater 4.91% 4.66% 60,289 16.07 7 -0.1649% 1,018.8
Floater 4.09% 4.09% 66,219 17.27 2 -1.1024% 936.2
Op. Retract 4.84% 2.38% 85,736 2.64 15 -0.0515% 1,056.9
Split-Share 5.30% 5.58% 70,137 4.18 15 -0.0270% 1,050.4
Interest Bearing 6.09% 6.02% 47,164 3.78 3 -0.1657% 1,118.3
Perpetual-Premium 5.87% 4.98% 392,934 9.66 13 -0.1853% 1,021.4
Perpetual-Discount 5.79% 5.85% 223,111 14.11 59 -0.4364% 906.5
Major Price Changes
Issue Index Change Notes
ELF.PR.G PerpetualDiscount -2.4763% Now with a pre-tax bid-YTW of 6.54% based on a bid of 18.51 and a limitMaturity.
BAM.PR.B Floater -2.3810% Catching up from yesterday.
GWO.PR.H PerpetualDiscount -2.2477% Now with a pre-tax bid-YTW of 5.71% based on a bid of 21.31 and a limitMaturity.
HSB.PR.D PerpetualDiscount -1.9535% Now with a pre-tax bid-YTW of 5.95% based on a bid of 21.08 and a limitMaturity.
SLF.PR.A PerpetualDiscount -1.9370% Now with a pre-tax bid-YTW of 5.89% based on a bid of 20.25 and a limitMaturity.
RY.PR.F PerpetualDiscount -1.7535% Now with a pre-tax bid-YTW of 5.73% based on a bid of 19.61 and a limitMaturity.
BAM.PR.M PerpetualDiscount -1.7299% Now with a pre-tax bid-YTW of 6.77% based on a bid of 17.61 and a limitMaturity.
BNA.PR.C SplitShare -1.6585% Asset coverage of just under 3.6:1 as of May 30 according to the company. Now with a pre-tax bid-YTW of 7.02% based on a bid of 20.16 and a hardMaturity 2019-1-10. Compare with BNA.PR.A (5.86% to 2010-9-30) and BNA.PR.B (8.29% to 2016-3-25).
FBS.PR.B SplitShare -1.6178% Asset coverage of just under 1.7:1 as of June 5, according to the company. Now with a pre-tax bid-YTW of 5.64% based on a bid of 9.73 and a hardMaturity 2011-12-15 at 10.00.
SLF.PR.D PerpetualDiscount -1.5263% Now with a pre-tax bid-YTW of 5.97% based on a bid of 18.71 and a limitMaturity.
SLF.PR.B PerpetualDiscount -1.5100% Now with a pre-tax bid-YTW of 5.96% based on a bid of 20.22 and a limitMaturity.
PWF.PR.E PerpetualDiscount -1.1424% Now with a pre-tax bid-YTW of 5.69% based on a bid of 24.23 and a limitMaturity.
GWO.PR.F PerpetualPremium -1.1236% Now with a pre-tax bid-YTW of 5.32% based on a bid of 25.52 and a call 2012-10-30 at 25.00.
Volume Highlights
Issue Index Volume Notes
BMO.PR.I OpRet 635,000 Nesbitt crossed 634,200 at 25.20 … nice work! Now with a pre-tax bid-YTW of 1.11% based on a bid of 25.13 and a call 2008-7-12 at 25.00 … it will yield 4.08 if it survives until its softMaturity 2008-11-24 at 25.00.
NTL.PR.G Scraps (Would be Ratchet, but there are credit concerns) 111,678  
RY.PR.B PerpetualDiscount 95,710 Anonymous crossed 90,000 at 21.05 … but they might have been different anonymice and therefore not a cross. Now with a pre-tax bid-YTW of 5.68% based on a bid of 20.91 and a limitMaturity.
BMO.PR.L PerpetualPremium 70,560 Now with a pre-tax bid-YTW of 5.89% based on a bid of 25.10 and a limitMaturity.
BMO.PR.J PerpetualDiscount 69,500 Now with a pre-tax bid-YTW of 5.71% based on a bid of 19.90 and a limitMaturity.
BNS.PR.L PerpetualDiscount 35,299 Now with a pre-tax bid-YTW of 5.66% based on a bid of 20.19 and a limitMaturity.

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

Posted in Market Action | No Comments »

New Trough for Preferreds?

June 12th, 2008

Doom! Carnage! Destruction! There have been better days, as Napolean said at Waterloo.

The market was down significantly today as inflation fears appear – for the nonce – to be affecting corporates as much as Canadas. PerpetualDiscounts now yield 5.85% as dividends, which (at the Ontario Interest-Equivalency Factor of 1.4x) provides the same after-tax income as interest of 8.18%. Long Corporate Bonds now yield a bit over 6.1%, so the interest-equivalent-spread is remaining fairly stable in its 190-210 basis point range.

CPD set a new 52-week low today, trading in a range of 17.44-66 and closing at 17.50-61, 6×250.

Assiduous, but gloomy, Readers will be fond of my article When Will Preferreds Recover?, in which I pointed out:

I have examined the last 14 years history of the BMO-CM 50 Preferred Share Index (since December 31, 1993) and the peak-to-trough performance of this index, from the peak at March 30, 2007 to November 30, 2007, is the worst on record. This period’s loss of 7.4% is unmatched by any other decline.

As a matter of fact, the previous worst peak-to-trough performance is that realized from March 30 to October 31 of this year. November’s poor returns were merely icing on the cake. The worst period previously, from the peak of January 1999 to the trough of February 29, 2000, experienced a loss of a mere 6.1%.

Daily figures for the BMOCM-50 are not available … not to me, anyway! But we can have a look at CPD as a proxy:

Total Return Comparisons
Month CPD
Total Return
After Expenses
After Fees		 MAPF
Total Return
After Expenses
Before Fees
December, 2007 +1.14% +4.50%
January, 2008 +0.00% +1.28%
February +2.17% +3.62%
March -2.90% -4.56%
April +0.00% +0.73%
May, 2008 +1.42% +1.39%
Six-Month Cumulative +1.76% +6.90%
June MTD -1.90% *
Total Cumulative -0.17% *

The MER on CPD is reported to be 0.45% p.a. Those seeking solace can add back a pro-rata share of this figure.

Malachite Aggressive Preferred Fund (“MAPF”) 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 MAPF or any other fund. For more information, see the fund’s main page.

A rough estimate of MAPF performance for the month-to-date is approximately: down 2.45% before fees and expenses. Expenses are capped at 50bp annually; fees are on a sliding scale depending upon amount invested. This figure is an estimate only and, even assuming perfect accuracy, does not necessarily reflect either the absolute or the relative figures that will be reported after month-end.

Long Corporates are reported to be down 1.09% for the month, down 2.57% for the calendar year to date (both figures represent total return of the DEX Long Term Corporate Bond Index).

HIMIPref™ Experimental Indices
Index Value
2007-11-30		 Value
2008-6-12		 Total
Return
Ratchet 1,049.6 1,114.1 +6.15%
FixFloat 1,035.4 1,018.8 -1.60%
Floater 970.9 936.2 -3.57%
OpRet 1,031.8 1,056.9 +2.43%
SplitShare 1,018.5 1,050.4 +3.13%
Interest 1,065.7 1,118.3 +4.94%
PerpetualPremium 1,065.7 1,021.4 -4.16%
PerpetualDiscount 904.3 906.5 +0.24%

It is most interesting to see that PerpetualDiscounts have managed to stay a little ahead of the game through the period … but on November 30 they had been marked down pretty low!

There are a few blanks in this post. I’ll fill them in shortly. All done!

Posted in Index Construction / Reporting | 5 Comments »

New Issue: BMO Fixed-Reset 5.20% +165

June 12th, 2008

And now there are six!

Actually, I detect a move in the right direction with this issue. The most recent fixed-reset was from National Bank, 5.375%+205 and the penultimate was TD, 5.00% +160; the Canada 5-year is now at 3.52%, up 6bp from yesterday. As the initial 5-year rate creeps up, I get more interested … but I’m not willing to buy just yet! Not with, for instance, BMO.PR.J closing at 19.83-95 last night, with a bid-Yield-to-Worst of 5.73% and the chance for a capital gain of 25% if yields fall.

Issue: Bank of Montreal Non-Cumulative 5-Year Rate Reset Class B Preferred Shares Series 16

Size: 10-million shares @25 (= $250-million); greenshoe of 2-million shares (=$50-million) exercisable prior to closing.

Exchange Dates: August 25, 2013 and every five years thereafter.

Dividends: 5.20% (=$1.30) p.a.; resets to 5-year Canadas +165bp every exchange date.

Exchange: Every Exchange Date to and from Series 17 Floaters, which pay 90-bills + 165, reset quarterly.

Redemption: Every Exchange Date at $25.00 for Resets; Floaters redeemable at $25 each Exchange Date and at $25.50 at all other times.

Ratings: S&P: P-1(low); DBRS: Pfd-1; Moody’s: Aa3

Closing: 2008-6-23

Posted in New Issues | 5 Comments »

June 11, 2008

June 11th, 2008

The post BIS Quarterly Review Deprecates ABX Benchmark for SubPrime has been updated to make it a little less cryptic.

Wouldn’t you know it! Just when I’m idiotically busy, Accrued Interest comes up with two good posts:How are Bonds Quoted? (great primer material) and LIBOR our only hope? No … there is another! which introduces ICAP, sponsored by ICAP PLC the “world’s biggest inter-dealer broker”. So no summaries for you, guys, I’m too busy. I hope to have escaped the current crush in about a week.

It was clobbering time again in the preferred share market, with Sunlife issues being hit particularly hard, just as they were on June 9. I confess that I don’t know what has been causing this … there doesn’t appear to be any news of note and the common stock isn’t doing anything too alarming.

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
Index Mean Current Yield (at bid) Mean YTW Mean Average Trading Value Mean Mod Dur (YTW) Issues Day’s Perf. Index Value
Ratchet 4.14% 3.86% 51,724 0.08 1 +0.1182% 1,114.1
Fixed-Floater 4.91% 4.65% 61,047 16.08 7 +0.3801% 1,020.5
Floater 4.04% 4.04% 66,206 17.37 2 +1.3532% 946.6
Op. Retract 4.84% 2.30% 86,355 2.64 15 -0.0331% 1,057.4
Split-Share 5.29% 5.57% 70,859 4.18 15 -0.3525% 1,050.7
Interest Bearing 6.08% 6.03% 47,157 3.79 3 +0.0002% 1,120.1
Perpetual-Premium 5.86% 4.62% 396,056 8.80 13 -0.0144% 1,023.3
Perpetual-Discount 5.76% 5.82% 223,813 14.15 59 -0.3716% 910.5
Major Price Changes
Issue Index Change Notes
SLF.PR.C PerpetualDiscount -3.7468% Now with a pre-tax bid-YTW of 5.87% based on a bid of 19.01 and a limitMaturity.
SLF.PR.B PerpetualDiscount -2.7475% Now with a pre-tax bid-YTW of 5.87% based on a bid of 20.53 and a limitMaturity.
BNA.PR.B SplitShare -2.5653% Asset coverage of just under 3.6:1 as of May 30, according to the company. Now with a pre-tax bid-YTW of 8.17% based on a bid of 20.51 and a hardMaturity 2016-3-25 at 25.00. Compare with BNA.PR.A (5.86% to 2010-9-30) and BNA.PR.C (6.81% to 2019-1-10).
SLF.PR.A PerpetualDiscount -2.4102% Now with a pre-tax bid-YTW of 5.77% based on a bid of 20.65 and a limitMaturity.
CM.PR.J PerpetualDiscount -1.7653% Now with a pre-tax bid-YTW of 6.04% based on a bid of 18.92 and a limitMaturity.
SLF.PR.D PerpetualDiscount -2.0619% Now with a pre-tax bid-YTW of 5.88% based on a bid of 19.00 and a limitMaturity.
HSB.PR.C PerpetualDiscount -1.9867% Went ex-dividend today … looks like the price over-compensated! Now with a pre-tax bid-YTW of 5.97% based on a bid of 21.45 and a limitMaturity.
RY.PR.A PerpetualDiscount -1.6288% Now with a pre-tax bid-YTW of 5.64% based on a bid of 19.93 and a limitMaturity.
CM.PR.H PerpetualDiscount -1.6569% Now with a pre-tax bid-YTW of 6.04% based on a bid of 20.18 and a limitMaturity.
GWO.PR.I PerpetualDiscount -1.5984% Now with a pre-tax bid-YTW of 5.73% based on a bid of 19.70 and a limitMaturity.
PWF.PR.L PerpetualDiscount -1.3605% Now with a pre-tax bid-YTW of 5.93% based on a bid of 21.75 and a limitMaturity.
CU.PR.B PerpetualPremium -1.1811% Now with a pre-tax bid-YTW of 5.98% based on a bid of 25.10 and a call 2012-7-1 at 25.00.
BMO.PR.K PerpetualDiscount -1.0435% Now with a pre-tax bid-YTW of 5.82% based on a bid of 22.76 and a limitMaturity.
SLF.PR.E PerpetualDiscount -1.0127% Now with a pre-tax bid-YTW of 5.77% based on a bid of 19.55 and a limitMaturity.
BCE.PR.R FixFloat +1.0941%  
IAG.PR.A PerpetualDiscount +1.1219% Now with a pre-tax bid-YTW of 5.82% based on a bid of 19.83 and a limitMaturity.
BCE.PR.C FixFloat +1.1379%  
BAM.PR.B Floater +2.8199% Went ex-dividend today, but the price went up anyway!
Volume Highlights
Issue Index Volume Notes
NTL.PR.G Scraps (Would be Ratchet, but there are credit concerns) 176,800  
NTL.PR.F Scraps (Would be Ratchet, but there are credit concerns) 142,942 CIBC crossed 100,000 at 11.00.
TD.PR.O PerpetualDiscount 113,135 Nesbitt crossed 50,000 at 22.36; National Bank crossed 50,000 at 22.30. Now with a pre-tax bid-YTW of 5.51% based on a bid of 22.32 and a limitMaturity.
RY.PR.F PerpetualDiscount 56,890 Now with a pre-tax bid-YTW of 5.63% based on a bid of 19.96 and a limitMaturity.
RY.PR.B PerpetualDiscount 49,200 Now with a pre-tax bid-YTW of 5.65% based on a bid of 21.01 and a limitMaturity.
TD.PR.R PerpetualPremium 46,300 Now with a pre-tax bid-YTW of 5.70% based on a bid of 25.13 and a limitMaturity.
BNS.PR.O PerpetualPremium 42,507 “Anonymous” bought 40,000 from RBC in five tranches, all at 25.10 … not necessarily the same “anonymous”. Now with a pre-tax bid-YTW of 5.65% based on a bid of 25.10 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 »

KSP.UN Downgraded to Pfd-3 by DBRS

June 11th, 2008

Not, perhaps, unequivocally a preferred share, but Kingsway Linked Return of Capital Trust is managed by Scotia Managed Companies and is rated by both S&P and DBRS using their “preferred share scale” … and we all know how dreadfully important the ratings scales are, don’t we? Critically important! Crucially important!

So anyway, DBRS says:

DBRS has today downgraded the LROC Preferred Units (the Units) issued by Kingsway Linked Return of Capital Trust to Pfd-3 from Pfd-3 (high), with a Negative trend. The rating had been placed Under Review with Negative Implications on December 21, 2007.

The Units are supported by an exposure to a note guaranteed by Kingsway Financial Services Inc. and Kingsway America Inc. (collectively, Kingsway) through a forward purchase agreement. The downgrade of the Units is a result of DBRS downgrading the long-term debt ratings of Kingsway on June 6, 2008, to BBB (low) from BBB, with a Negative trend.

The redemption date for the Units will be June 30, 2015.

The issue continues to be rated P-3 by S&P (which rates Kingsway Financial at BB (negative trend) and issues of Kingsway America at BB.

KSP.UN is not tracked by HIMIPref™.

Posted in Issue Comments | 1 Comment »

LB.PR.D & LB.PR.E Upgraded to Pfd-3(high) by DBRS

June 11th, 2008

DBRS has announced it:

has today upgraded the Deposits & Senior Debt rating of Laurentian Bank of Canada (Laurentian, LB or the Bank) to BBB (high), the Subordinated Debt to BBB and the Short-Term Instruments to R-1 (low) from BBB, BBB (low) and R-2 (high), respectively; all the trends are Stable.

The rating upgrades reflect the progress LB has made in improving its sustainable internal capital generation through improvement in its earnings profile. DBRS believes LB’s strategy to focus on its three core segments (Retail & SME Québec, B2B Trust and Real Estate & Commercial) and its improved operating efficiency have been instrumental in increasing the quality of earnings over the last several years. A more clearly defined target market, investment in technology, strengthened relations with its unionized workforce and incentive compensation programs contributed to this improvement.

The core strategy is expected to deliver further improvements in return on equity (ROE) and internal capital generation in the intermediate term, although these improvements will likely be hampered in the near term by the slowing regional economy and difficult operating environment for banks in general.

Over the longer term, material improvements in efficiency are required to eliminate the Bank’s competitive disadvantage in its cost structure. Further efficiency improvements are targeted by increasing revenues while holding expense growth to lower levels, which DBRS views as an appropriate strategy. Working with the unionized workforce and improving the sales culture of the organization are integral to this goal.

B2B Trust has been (and is expected to continue to be) a positive factor in Laurentian’s credit profile in terms of its contribution to profitability, as well as the beneficial effect it has on both business line and geographic diversification.

Under DBRS’s global rating methodology for banks, Laurentian’s long-term Deposits & Senior Debt rating has an Intrinsic Assessment of BBB (high) and a Support Assessment of SA3. The SA3 rating, which reflects the expectation of no timely external support, results in the final rating being equivalent to the Intrinsic Assessment.

Laurentian reported adjusted ROE and internal capital generation in the first half of 2008 of 10.9% and 7.1%, respectively. While still comparatively low and assisted by an outsized securitization gain, these results are the highest in the past six years. Relative to other Canadian banks, LB has benefited from its higher proportion of retail deposit funding over the past nine months of credit market instability. Asset quality has remained strong.

While not mentioned in the text of the press release, the summary shows the preferreds being upgraded to Pfd-3(high).

This is a welcome change in direction for the bank’s ratings:

DBRS Ratings for LB
From To Rating
2001-11-08 2003-12-15 Pfd-2(low)
2003-12-16 2004-10-7 Pfd-3(high)
2004-10-8 2008-6-11 Pfd-3
2008-6-12 ? Pfd-3(high)

Update: The preferreds continue to be rated P-3(high) by S&P, while the credit rating is BBB with a positive trend.

Update: See also previous commentary for LB.PR.D and LB.PR.E

Posted in Issue Comments | No Comments »

OSFI: This is How It's Supposed To Work!

June 11th, 2008

OSFI has come under a certain amount of media criticism regarding ABCP – the media criticism is completely uninformed and reflects a notion that a regulator of anything should regulate everything – but felt sufficiently pressured to address the issue to take Public Relations action.

Assiduous Readers will remember that I am currently considering the new form of hybrid Tier 1 Capital that dropped, ker-plunk! onto OSFI’s website without notice or explanation. An inquiry directed to OSFI did result in a call from an OSFI staffer who was as helpful as he could be … but background material and discussion papers simply do not exist.

This is completely unacceptable.

We can, for instance, go to the website of the Committee of European Banking Supervisors – which, by the way, looks a lot more professional than the OSFI website – and see a plethora of links to news, other stories, publications and consultations. We can sign up for eMail alerts. And, with a minimum of effort, we can find the publication Proposal for a common EU definition of Tier 1 hybrids, released on March 26, 2008, which deals with the question of cumulativity (which I’ll examine in another post), and includes the information:

12. During the whole process CEBS maintained a dialogue with market participants in order to gain a better understanding of the range of concerns the current definition of own funds in the EU, and especially Tier 1 hybrid capital instruments, causes for market participants and their views on what a more consistent definition would look like.

13. For this purpose, CEBS organized public hearings in June and November 2007 as well as bilateral meetings with representatives of institutions, rating agencies and investors.

14. On 7 December 2007 the draft proposals were published for public consultation. CEBS received 31 responses. The comments and proposals provided have been incorporated, where appropriate. For details please see the feedback table (CEBS 2008 33).

Responses? You want to know what the players are saying? All 31 responses are published and the list of responses is easy to find through the announcement of publication. Anybody who wants to understand the issues and come to an independent judgement as to the adequacy of bank capitalization rules with respect to this issue will find a wealth of information on the European site.

Why does Canada’s financial regulator maintain a third-world website and conduct its practices with such comparitive secrecy?

Canadian banks have mythic status to Canadians, due largely to the lack of large bankruptcies. While I will not grudge OSFI any of the credit for maintaining a strong banking system, I will provide some friendly warning: pull up your socks and communicate your processes more clearly or, when a real crisis actually does hit Canadian banks, the whining about ABCP will seem laughably picayune.

Posted in Regulation | 1 Comment »

New Issue: Loblaw 5.95% 7-Year Retractibles

June 11th, 2008

Loblaw Companies has announced:

a domestic public offering of 9 million cumulative redeemable convertible Second Preferred Shares, Series A (the “Preferred Shares Series A”) at a price of $25.00 per share, to yield 5.95% per annum, for an aggregate gross amount of $225 million.

Loblaw has agreed to sell the Preferred Shares Series A to a syndicate of underwriters co-led by RBC Dominion Securities Inc. and CIBC World Markets Inc. on a bought deal basis. Loblaw has granted to the underwriters an option to purchase an additional $75 million of the Preferred Shares Series A at any time up to 48 hours prior to closing.

The Preferred Shares Series A will be offered by way of prospectus supplement under the short form base shelf prospectus of Loblaw Companies Limited dated June 5, 2008. The prospectus supplement will be filed with securities regulatory authorities in all provinces of Canada.

The net proceeds of the issue will be added to the general funds of Loblaw Companies Limited and used for general corporate purposes. The offering is expected to close on or about June 20, 2008.

Issue: Loblaw Companies Limited 5.95% Cumulative Redeemable Second Preferred Shares, Series A

Size: 9-million shares @ $25 (= $225-million) + greenshoe of 3-million shares (= $75-million) exercisable prior to closing.

Dividends: $1.4875 p.a., payable quarterly; long first dividend of $0.5394 payable 2008-10-31

Redemption: Redeemable at $25.75 commencing 2013-7-31; redemption price declines to $25.50 commencing 2014-7-31; declines to $25.00 if redeemed on or after 2015-7-31. Redemption price may be satisfied with shares of Loblaw at 95% of market (as defined).

Retraction: At $25 into shares of Loblaw at 95% of market (as defined), commencing 2015-7-31. Company can substitute cash at its option.

Ratings: S&P: P-3(high); DBRS Pfd-3 (negative trend)

Closing: 2008-6-20

Well, it’s certainly nice to see an operating-retractible issue offered in size; sadly, the ratings will keep it out of the HIMIPref™ indices and many portfolios. More later.

Update: This issue looks expensive.

Loblaw New Issue
and Some Comparators
Ticker DBRS
Rating		 Current
Quote		 Retraction
Date		 Yield
to
Retraction
L.PR.? Pfd-3 25.00
Issue
Price		 2015-7-30

6.05%
BPO.PR.K Pfd-3(high) 23.11-35 2016-12-30 6.57%
YPG.PR.B Pfd-3(high) 20.75-90 2017-6-29 7.65%
DW.PR.A Pfd-3 21.80-94 2017-3-12 6.91%

Posted in New Issues | 1 Comment »

June 10, 2008

June 10th, 2008

Sorry, folks! Not much today!

Bloomberg reports:

The average yield over similar-duration Treasuries on AAA securities backed by subprime or second mortgages was at 6.23 percentage points yesterday, the highest since the last week of April, according to Lehman index data. The spread rose as high as 7.52 percentage points on May 9, according to the New York-based securities firm’s index.

Renewed investor demand remains strong for the types of AAA rated subprime-mortgage bonds that are the first to be repaid with principal returned from the underlying loans, “with little price discovery in other tranche types,” according to a report yesterday from Countrywide Financial Corp. analysts including Anand Bhattacharya and Bill Berliner.

The ABX-HE-AAA 07-2 subprime index fell as low as 50.67 in March, according to administrator Markit Group Ltd. New ABX indexes created last month and tied to the second-to-last-to-be- repaid AAA classes have fallen to record lows for each six-month ABX series, with the latest declining from a high of 70 to 57.72.

There are rumours of a cosmetic change in rating indicators:

Regulators’ plans to add a letter to credit ratings of asset-backed debt may constrict the $4.6 trillion market and choke off consumer credit at a time when Federal Reserve Chairman Ben Bernanke wants more lending to bolster the economy.

The U.S. Securities and Exchange Commission may recommend this week that Moody’s Investors Service, Standard & Poor’s and Fitch Ratings include a new designation to the scale created by John Moody in 1909, according to people familiar with the plans.

The sad part is that some people actually think it matters.

Central Banks of all descriptions, not just the Bank of Canada, have remembered inflation.

The BoC’s decision not to move KILLED the front end of the market today, with DEX reporting 2-Years +31bp to 3.30%, 5s +23bp to 3.52%, 7s +18bp to 3.62% and 10s +12bp to 3.84%. Long corporates are still in the 6.05% neighborhood (about 190bp over Canadas); Interest-equivalent Perpetual Discounts are now about at 8.12% so spreads are about +207bp … a modest widening.

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
Index Mean Current Yield (at bid) Mean YTW Mean Average Trading Value Mean Mod Dur (YTW) Issues Day’s Perf. Index Value
Ratchet 4.15% 4.16% 53,542 17.1 1 -0.0394% 1,112.8
Fixed-Floater 4.92% 4.68% 61,693 16.04 7 -0.0361% 1,016.6
Floater 4.04% 4.10% 64,425 17.13 2 -0.2269% 934.0
Op. Retract 4.83% 1.98% 87,145 2.84 15 -0.0742% 1,057.8
Split-Share 5.27% 5.50% 70,603 4.19 15 +0.0844% 1,054.4
Interest Bearing 6.08% 6.06% 47,763 3.79 3 -0.3304% 1,120.1
Perpetual-Premium 5.85% 5.77% 399,530 10.65 13 -0.0503% 1,023.4
Perpetual-Discount 5.73% 5.80% 224,725 14.17 59 -0.5862% 913.9
Major Price Changes
Issue Index Change Notes
GWO.PR.I PerpetualDiscount -2.8627% Now with a pre-tax bid-YTW of 5.63% based on a bid of 20.02 and a limitMaturity.
IAG.PR.A PerpetualDiscount -2.7282% Now with a pre-tax bid-YTW of 5.88% based on a bid of 19.61 and a limitMaturity.
BNS.PR.M PerpetualDiscount -1.9560% Now with a pre-tax bid-YTW of 5.70% based on a bid of 20.05 and a limitMaturity.
BNS.PR.L PerpetualDiscount -1.8618% Now with a pre-tax bid-YTW of 5.70% based on a bid of 20.03 and a limitMaturity.
CM.PR.J PerpetualDiscount -1.7653% Now with a pre-tax bid-YTW of 6.04% based on a bid of 18.92 and a limitMaturity.
GWO.PR.G PerpetualDiscount -1.7582% Now with a pre-tax bid-YTW of 5.83% based on a bid of 22.35 and a limitMaturity.
BCE.PR.Z FixFloat -1.7023%  
RY.PR.A PerpetualDiscount -1.6288% Now with a pre-tax bid-YTW of 5.64% based on a bid of 19.93 and a limitMaturity.
PWF.PR.L PerpetualDiscount -1.5625% Now with a pre-tax bid-YTW of 5.87% based on a bid of 22.05 and a limitMaturity.
BAM.PR.B Floater -1.4762%  
SLF.PR.C PerpetualDiscount -1.2994% Now with a pre-tax bid-YTW of 5.65% based on a bid of 19.75 and a limitMaturity.
BMO.PR.J PerpetualDiscount -1.2438% Now with a pre-tax bid-YTW of 5.72% based on a bid of 19.85 and a limitMaturity.
POW.PR.D PerpetualDiscount -1.1457% Now with a pre-tax bid-YTW of 5.88% based on a bid of 21.57 and a limitMaturity.
SLF.PR.E PerpetualDiscount -1.0521% Now with a pre-tax bid-YTW of 5.71% based on a bid of 19.75 and a limitMaturity.
BAM.PR.K Floater +1.0396%  
MFC.PR.C PerpetualDiscount +1.2107% Now with a pre-tax bid-YTW of 5.41% based on a bid of 20.90 and a limitMaturity.
BCE.PR.G FixFloat +1.3423%  
Volume Highlights
Issue Index Volume Notes
BAM.PR.K Floater 185,303 TD crossed 40,000 at 20.50.
RY.PR.A PerpetualDiscount 141,347 Now with a pre-tax bid-YTW of 5.64% based on a bid of 19.93 and a limitMaturity.
CM.PR.H PerpetualDiscount 74,707 Now with a pre-tax bid-YTW of 5.94% based on a bid of 20.52 and a limitMaturity.
RY.PR.W PerpetualDiscount 69,215 Now with a pre-tax bid-YTW of 5.60% based on a bid of 22.08 and a limitMaturity.
CM.PR.I PerpetualDiscount 65,765 Now with a pre-tax bid-YTW of 6.03% based on a bid of 19.80 and a limitMaturity.

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

Posted in Market Action | 1 Comment »

BDS.PR.A to be Exchanged for VIP.PR.A

June 10th, 2008

Brompton Group has announced:

A special meeting of securityholders for the funds listed below (collectively, the “Funds”) was held today at which securityholders approved the extraordinary resolutions to reorganize the Funds, including the merger of certain funds.

According to the website, VIP.PR.A will come with the same terms as BDS.PR.A, although the Information Circular does not appear to make this clear. The original intent had been to redeem BDS.PR.A, but these plans were changed in April.

Posted in Issue Comments | No Comments »

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