PrefBlog

Another bad day for Greek bonds:

The yield on the Greek 10-year bond added 56 basis points, driving the difference with German bunds to a record 1,349 basis points.
…
Stocks and the euro extended losses as the Associated Press reported Norway froze a 235 million kroner ($42.3 million) grant to Greece because it hasn’t lived up to conditions linked to the grant, while Fitch Ratings said any potential extension of Greek bond maturities would be considered a default as it downgraded the debt.
…
The yield on Greek 10-year bonds surged 1.11 percentage points to 16.55 percent this week. The Portuguese 10-year yield increased 27 basis points to 9.38 percent, sending the spread with benchmark German bunds 33 basis points wider. Irish 10-year bond yields rose six basis points, with similar-maturity Spanish yields nine basis points higher.

The IMF has lent some money to Portugal:

The International Monetary Fund approved a 26 billion-euro ($36.8 billion) loan to Portugal as part of a joint bailout with the European Union in the latest effort to stem the region’s sovereign debt crisis.

The Washington-based institution will make 6.1 billion euros available immediately, the fund said in an e-mailed statement today. The IMF followed European officials, who on May 16 endorsed the 78-billion ($110 billion) joint package.

Sadly, the article does not address the question of whether the cheque was delivered by women in skimply little maid outfits.

The FRB-Boston has released a public policy brief by Jeffrey C. Fuhrer and Giovanni P. Olivei titled The Estimated Macroeconomic Effects of the Federal Reserve’s Large-Scale Treasury Purchase Program:

This brief examines an issue of current importance to the conduct of U.S. economic policy: how has the Federal Open Market Committee (FOMC) plan to purchase up to $600 billion of Treasury securities by June 30, 2011 affected the movement of inflation, GDP, and employment to more desirable medium-term and long-term levels? Following the FOMC’s announcement of the plan on November 3, 2010, other events that potentially influence Treasury yields have been at play. To estimate the effects that the FOMC Treasury purchases may have on the goal of achieving more desirable levels of inflation and employment, the authors make use of different models to gauge the likely effect upon interest rates, the interest rate effects on real spending (GDP), and how changes in GDP may be affecting the employment rate.

The FRB-Cleveland has published the May, 2011, edition of Economic Trends.

OSFI has released the Spring, 2011, edition of the OSFI Pillar with articles (well, notes, really):

• OSFI Plan and Priorities for 2011-2014
• Draft revised MCT guideline for P&C insurers
• Speech by Assistant Superintendent Ted Price
• Speech by Superintendent Julie Dickson
• External peer review panel on 25th CPP Actuarial Report
• Draft Stress Testing Guideline for Defined Benefit Pension Plans

There was good inflation news:

The consumer price index increased 0.3 percent in April after a 1.1 percent gain in the previous month, Statistics Canada reported today. The median forecast of 27 economists in a Bloomberg News survey was for a 0.5 percent advance.
…
Consumer prices rose 3.3 percent from a year earlier, matching the annual rate of advance in March.

The TMX will resist bank hegemony. Go, guys, go!

Bubble, bubble, toil and trouble:

Housing costs for the average two-storey home in Vancouver today eat up the equivalent of 80 per cent of a typical family’s annual pretax income, according to new research, putting ownership out of reach for most.
…
Across the country, homeowners are putting a larger portion of their earnings toward their homes, and interest-rate increases are likely to put further pressure on homeowners in the coming months, the Royal Bank of Canada said in its quarterly affordability index.

The problem is especially pronounced in Vancouver, where the bank estimated families must now dedicate 72 per cent of their household income to pay the mortgage, property taxes and utilities on a bungalow. In Toronto, it would take 47.5 per cent.

It was another fine day for the Canadian preferred share market, with PerpetualDiscounts inching ahead by 1bp, FixedResets up 11bp and DeemedRetractibes rocketting 28bp. The last group were led by SLF issues, which went ex-Dividend today. Volume was mediocre.

See you after the Rapture!

The lifecos continue to whine about new capital requirements:

International Financial Reporting Standards (IFRS) set to take effect 2014 “will severely inhibit” the core business of Canadian lifecos, Donald Stewart, chief executive of Sun Life Financial Inc., told the company’s meeting Wednesday.

One of the main problems with IFRS is that it changes the way companies value products such as life insurance policies, potentially forcing companies to hike prices beyond the reach of many Canadians. Mr. Stewart warned this wouldn’t benefit either the industry or the country.

Meanwhile, insurers are also bracing for the impact of new capital rules that are “significantly more onerous” than existing regulations, he said.

The industry is working with the Office of the Superintendent of Financial institutions, the regulator, to try to ensure that the new capital rules are not excessively stringent.
…
The comments echo recent statements made by Don Guloien, chief executive of Manulife Financial Corp. Mr. Guloien told his company’s annual meeting May 5 that new accounting and capital rules constitute one of the single biggest risks that Manulife currently faces.

The industry is particularly concerned that the new IFRS accounting rules will make earnings more volatile. That could have a negative impact on capital and on key capital ratios used by the regulator to determine a company’s financial health.

DSK has quit the IMF to pursue other interests.

Here’s a straw in the wind:

Amazon.com Inc. (AMZN) now sells 105 books for its Kindle electronic-readers for every 100 printed books.

Sales of the e-books for the Kindle, introduced in 2007, surpassed hardcover titles in July 2010, and overtook paperbacks six months later, the Seattle-based company said today in a statement.

It was a strong day in the Canadian preferred share market, with PerpetualDiscounts gaining 20bp, FixedResets up 5bp and DeemedRetractibles leaping ahead 38bp. The Performance Highlights table told a tale, with nine entries, all DeemedRetractible and mostly insurers – which was also the tilt on the volume table, although not to as large an extent. Volume was comfortably above average.

There’s a scuffle about a Greek default:

European Central Bank officials ruled out a Greek debt restructuring, clashing with political leaders over a solution to the sovereign financial crisis.

“A Greek debt restructuring is not the appropriate way forward — it would create a catastrophe” because it would damage the banking system, ECB Executive Board member Juergen Stark said today in Lagonissi, Greece. Fellow board member Lorenzo Bini Smaghi said in Milan that “a solution for reducing debt but not paying for it will not work.”

Now, I will not claim that I’m the world’s greatest scholar on the debt crisis, but that seems to me to be the first official admission that the purpose of the various bail-outs is to save the banks. Anybody have anything both earlier and more explicit?

More gloomy punditry on US housing:

More than half U.S. homeowners and renters say housing won’t recover until at least 2014, reflecting a deepening pessimism about the real estate market, according to a survey by Trulia Inc. and RealtyTrac Inc.

The survey, taken in April, found that 54 percent of respondents don’t expect a recovery for at least three years, up from 34 percent in November, the two real estate data companies said today. Those who see a turnaround by the end of next year fell to 15 percent from 27 percent.

The housing market is weakening as near record-low interest rates and falling prices fail to boost demand after the expiration of a federal tax credit for homebuyers last year. Values will come under more pressure as 1.8 million properties that are delinquent or in foreclosure are added to the inventory of unsold homes, according to a March estimate by CoreLogic Inc., a real estate information firm in Santa Ana, California.

The iPad has been extraordinarily disruptive:

The iPad is wreaking havoc on the personal-computer market.

Hewlett-Packard Co. (HPQ)’s consumer PC sales plunged 23 percent last quarter, and the company lopped $1 billion off its annual sales forecast. And while rival Dell Inc. (DELL) beat analysts’ estimates because of corporate demand, its sales to consumers slumped 7.5 percent. More than 70 million tablets like the Apple Inc. (AAPL) iPad will be sold in 2011, a total that will balloon to 246 million in three years, Jefferies & Co. said yesterday.

You don’t need a full-blown computer to use eMail or look at dirty pictures on the internet!

There’s sales parties, sure. And then there’s REALLY GOOD sales parties!

A Munich Re unit hosted about 20 prostitutes at a Budapest party to reward the insurer’s high- performing agents, a spokesman said.
…
Ergo hosted the party for about 100 guests at the historic Gellert spa, Handelsblatt reported in a preview of an article to be published today. Women wore color-coded armbands, the newspaper said, citing unidentified guests, with red for hostesses, yellow for those available for sexual favors and white for women reserved for executives and top agents. After each trip to beds set up near the thermal baths, a woman would receive a stamp on her forearm, the paper reported.

And, just to get even further off topic, The Periodic Table of Videos is a great website!

It was a sharply mixed day for the Canadian preferred share market, with PerpetualDiscounts winning 20bp, FixedResets losing 17bp, and DeemedRetractibles ahead 11bp. The Performance Highlights table is more interesting than usual, but still nothing like the glory days of late 4Q08 / 1Q09, which will be treasured in my memory for as long as I still have one.

PerpetualDiscounts now yield 5.51%, equivalent to 7.16% interest at the standard equivalency factor of 1.3x. Long Corporates now yield a little under 5.4% (maybe I should say, a little over 5.35%), so the pre-tax interest-equivalent spread is now about 180bp, about the same as reported on May 11.