PrefBlog

I’m taking up a collection to save the endangered FX trader:

A widening probe of the foreign-exchange market is roiling an industry already under pressure to reduce costs as computer platforms displace human traders.

Electronic dealing, which accounted for 66 percent of all currency transactions in 2013 and 20 percent in 2001, will increase to 76 percent within five years, according to Aite Group LLC, a Boston-based consulting firm that reviewed Bank for International Settlements data. About 81 percent of spot trading — the buying and selling of currency for immediate delivery — will be electronic by 2018, Aite said.
…
The push toward electronic trading probably will lower costs for customers and boost transparency of pricing, according to Cormac Leech, an analyst at Liberum Capital Ltd. in London. It may also squeeze margins for banks, he said.

Human traders have maintained their role in the foreign-exchange market while disappearing in areas such as equities because most trading takes place away from exchanges. That means clients don’t have a central repository showing the flow of completed orders, forcing them to piece together information about the direction of rates from traders and salesmen with knowledge of other clients’ orders. People were also needed because early computerized trading systems weren’t reliable and couldn’t handle larger transactions, according to dealers.

If Cormac Leech in the third paragraph is right, it will be the first time transparency has helped customers as a whole in a financial market. In all other markets, such a transition results in dealers holding less inventory and spreads narrowing but becoming much more brittle – more intra-day volatility. We will see!

It was a positive day for the Canadian preferred share market, with PerpetualDiscounts up 10bp, FixedResets gaining 7bp and DeemedRetractibles winning 11bp. Volatility was minimal. Volume was average.

Nothing happened today.

It was a positive day for the Canadian preferred share market, with PerpetualDiscounts up 7bp, FixedResets winning 10bp and DeemedRetractibles gaining 6bp. The Performance Highlights table is a little longer than usual, but has no clear pattern. Volume was low.

Changes in Fed policy can disproportionate effects:

Federal Reserve Bank of St. Louis President James Bullard said Fed officials will probably be careful about altering the pace of their reductions to bond buying because of a potentially significant impact on markets.

“If we move off our baseline, it’s going to have pretty big repercussions,” Bullard said today in an interview at Bloomberg’s headquarters in New York. “We’d be cautious in using that — it’s going to have to be a situation where you’re pretty sure things are moving off track.”
…
Bullard said the market’s reaction last June to a potential tapering, and the impact of the Fed’s surprise decision in September to maintain the pace of its asset purchases, illustrated that fluctuations in the amount of quantitative easing have “powerful” consequences.

In June, global equity markets lost $3 trillion in the five days after former Fed Chairman Ben S. Bernanke said he might reduce his $85 billion in monthly asset purchases that year and end them by mid-2014. In September, the Fed refrained from tapering, reversing a rise in bond yields and pushing back expectations for a tightening of monetary policy.

“In both of these cases, it showed it really matters a lot,” Bullard said. “Flow-based purchases have been really a powerful tool.”

Market movement was modest for Canadian preferred shares today, with PerpetualDiscounts off 2bp, FixedResets gaining 2bp and DeemedRetractibles up 3bp. The Performance Highlights table is notable for two winning Floating Rate issues. Volume was average.

DBRS commented on the Federal budget:

As anticipated at the time of DBRS’s last review, Canada’s debt burden appears to have reached an inflection point and reducing debt remains a long-term goal of the government. Gross market debt (the measure tracked by DBRS) is projected to fall by 3.1% to $647 billion by March 31, 2014, resulting in a debt-to-GDP ratio of roughly 35%, down from 37% a year earlier. For 2014-15, market debt is expected to remain relatively flat, pointing to a debt-to-GDP ratio of 34%. Total borrowing requirements are forecast at $232 billion in 2014-2015, comprised almost entirely of refinancing needs. The government plans to continue to reduce refinancing risk by replacing maturing treasury bills with longer-term bonds, which should lengthen the average term to maturity of the debt portfolio. In addition, the issuance of 50-year bonds is being contemplated, after having considered 40-year issuance in the previous budget.

… but there were also some cogent words from Konrad Yakabuski of the Globe:

Hence, Mr. Flaherty’s latest, and perhaps last, budget includes another $500-million for Ottawa’s so-called Automotive Innovation Fund, increasing the total to $1-billion. The funds are supposed to be doled out in “repayable contributions to automotive firms that are undertaking strategic large-scale research and development projects focused on new vehicle technologies.”

Don’t be fooled. About as much R&D goes on in Canada’s auto sector as in my kitchen. The AIF is a slush fund used to subsidize the wages of auto workers whose “quality,” according to a 2012 study by the Institute for Research on Public Policy, has “not proven to be an important factor in productivity growth in motor-vehicle assembly over the past 45 years.” Yet, Chrysler reportedly wants up to $700-million from Ottawa and Ontario to assemble a “new generation” of minivans in Windsor.
…
According to the IRPP study by economists Leslie Shiell of the University of Ottawa and Robin Somerville of the Centre for Spatial Economics, the rescues cost Canadian taxpayers more than $500,000 for every job saved.

At least there’s a little good news for granny:

Canadian banks are slashing the trading fees charged by their online investing platforms, a sudden about-face after years of ignoring intense competition from independent rivals with cheaper prices.

In the past month, Royal Bank of Canada, Toronto-Dominion Bank and Bank of Montreal each cut their discount brokerage prices. Now any of their clients, regardless of their portfolio size, can buy or sell a stock for $9.95 to $9.99 – a low fee historically reserved for clients with tens of thousands of dollars to invest.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts down 22bp, FixedResets gaining 6bp and DeemedRetractibles flat. Volatility was minimal. Several issues saw heavy volume, but overall it was a light trading day.

PerpetualDiscounts now yield 5.61%, equivalent to 7.29% interest at the standard equivalency factor of 1.3x. Long corporates now yield about 4.6%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 270bp, a slight (and perhaps spurious) narrowing from the 275bp reported February 5.