PrefBlog

The Globe & Mail reports that new rules for retail bond desks are coming:

Many investors would for the first time find out exactly how much commission they are paying to buy and sell bonds. Industry convention is to hide the commission in the purchase or sale price of the bond, but the new rules would force it to be broken out.

The rules would also require better disclosure of the bond’s yield – the real interest rate based on the price.

Perhaps most importantly, and contentiously, IIROC plans a “fair pricing rule” to enable regulators to punish dealers who trade bonds at prices far from the true market price.

Thoroughly precious and idiotic. There are some fine alternatives available for retail investors who don’t know what they’re doing: funds. I have no idea what this “yield disclosure” thingy might mean; perhaps it simply means that dealers will be required to print the yield on their confirms, as they are for Money Market instruments.

Look for retail bond offerings at brokerages to be even more sharply reduced than they are now. When you buy your GIC, you’ll know you’re getting best execution on the price!

The market continued its rally today with heavy volume. Performance for the past two weeks has been impressive:

Strong performance today on normal volume. Not much news – government holiday!

If Dealbreaker is anything to go by – and I think it is – the latest plan to stimulate an artificial market for highly illiquid and distressed securities will go the way of all the others:

Is it not enough that we are already providing what are effectively failed institutions unbearably low cost capital while the likes of Berkshire Hathaway must wallow in high rates?

It is more than despicable that, now that the PPIP looks like it may be an abject failure even before bids have hit the screens, we should see the attempt to throw the problem onto the “dumb money” of the retail investor, while collecting fees, we might add.

Dealbreaker also brings to my attention an adulatory piece on Bernanke’s management style. Bernanke amazes me. There he was, an academic with experience on the board of the Fed, quietly doing his research on the Depression … normally he could look forward to a life of rewarding work and the the respect of a few dozen of his colleagues who knew and understood what he was talking about. Suddenly, he’s in the hotseat, doing the job he’s been training to do all his life, knowing that every decision he makes will be fodder for academia for the next hundred years … lucky man! And we’re lucky to have him.

Another strong day on the market with increasing volume, particularly among the Fixed-Resets. PerpetualDiscounts are now up 4.26% on the month, while FixedResets are up 2.40%. Average Trading Volume of the former continues its gradual decline, but I see no reason to panic as yet. Who knows, maybe some people simply gave up trading for Lent!

The SEC has announced that facts don’t matter any more:

The U.S. Securities and Exchange Commission will weigh multiple rules to dictate when traders can bet shares will fall, after lawmakers and business groups said short-sellers fueled the financial crisis by targeting banks.
…
[SEC Chairman Mary] Schapiro said the SEC isn’t aware of any “empirical evidence” that shows the elimination of the uptick rule contributed to falling U.S. stock prices. Still, “many members of the public have come to associate short-selling with that volatility and with a loss of investor confidence,” she said.

… but it might simply be some more political grandstanding:

SEC Commissioner Kathleen Casey, a Republican, questioned whether the agency was pushing forward “merely in a political exercise.” If the SEC fails to justify its actions, the agency risked having any rule challenged and shot down by a federal court, she said.

“Empirical evidence must guide regulatory decisions,” said Casey, who said she supported soliciting public comment on the proposals. “If the commission forgets this principle, the D.C. Circuit stands ready to provide a reminder.”

Another day of good solid gains for preferreds, with PerpetualDiscounts gaining 0.35%, just a hairsbreadth better than Fixed Resets. The former asset class now has pre-tax bid-YTW of 7.06%, equivalent to 9.88% interest after application of the standard 1.4x conversion factor. Long corporates remain as near as dammit to 7.5%, so the pre-tax Interest Equivalent spread is now 238bp.

Volume was good today, dominated by the recent FixedReset issues; MFC.PR.D’s volume is picking up. It’s hard to tell what to think about this issue – the issue size was bumped and the underwriters exercised their greenshoe, but the issue has been trading sub-par since its issue with less volume than one might expect from an issue of this size. Could it be that the underwriters took a basketful into inventory?

For the first time in a while, we close a day without any new Fixed-Reset issues being marketted. It is, I suspect, a rather interesting conundrum; the banks – and insurers! – could probably use some more capital with a 5-year call; but market yields now suggest that a new issue should carry a coupon of less than the recent new issues. Who wants to be the first to try selling an issue with a reduced coupon? As far as I can readily recall, it would be a first for the sector.