PrefBlog

Are the European dominoes falling?

The good news is Greece won’t default on March 20, and 10-year borrowing costs for Spain and Italy have dropped below 5 percent. The bad news is similar- maturity Portuguese bonds still yield more than 13 percent.
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Unlimited European Central Bank loans to banks have halted a bond-market rout that prompted investors to drive German yields to record lows and yield premiums on the securities of its regional peers to euro-era highs. The Italian 10-year yield has dropped more than 150 basis points and the rate on similar- maturity Spanish debt is about 80 basis points lower since the ECB announced Dec. 8 it would offer loans to financial institutions through two longer-term refinancing operations.

It was another quiet day for the Canadian preferred share market, with PerpetualPremiums gaining 6bp, FixedResets exactly flat, and DeemedRetractibles winning 10bp. There was an appropriately small Performance Highlights table generated; volume was a little below average.

There was a good US jobs number today:

Employers in the U.S. boosted payrolls more than forecast in February, capping the best six- month streak of job growth since 2006 and sending stocks higher.

The 227,000 increase followed a revised 284,000 gain in January that was bigger than first estimated, Labor Department figures showed today in Washington. The median projection of economists in a Bloomberg News survey called for a 210,000 rise. The jobless rate held at 8.3 percent, even as 476,000 more workers sought employment.

More jobs are helping fuel the wage gains that drive consumer spending, which accounts for about 70 percent of the economy.

Canada, not so much:

Canada’s economy shed 2,800 jobs last month, extending a stretch of meagre job creation that began last summer.

The country’s jobless rate fell two notches to 7.4 per cent in February, but that was due to fewer people seeking work rather than any pickup in the labour market, Statistics Canada said Friday.

But fear not, Canadians! The wise men in Ottawa are exerting every effort to eliminate Twitter posting from government computers.

Amazingly, Greece CDSs reflect reality:

Greece’s use of collective action clauses forcing investors to take losses under its debt restructuring triggers payouts on $3 billion of default insurance, the International Swaps & Derivatives Association said.

A total 4,323 credit-default swap contracts may now be settled after ISDA’s determinations committee ruled the use of CACs is a restructuring credit event, according to a statement distributed today by Business Wire. Before the ruling, Greek swaps rose to a record $7.68 million in advance and $100,000 annually to insure $10 million of debt for five years.

Veresen, proud issuer of VSN.PR.A, issued two series of BBB(high) MTNs:

— $300 million 3.95% unsecured medium-term notes (MTNs) maturing on March 14, 2017.
— $50 million 5.05% unsecured MTNs maturing on March 14, 2022.

The 110bp premium for the extra five years compares with a 55bp relative term premium on Canadas.

Husky Energy, proud issuer of HSE.PR.A, was confirmed at Pfd-2(low) by DBRS:

Husky maintains a conservative financial profile. Its debt-to-capital and debt-to-cash flow ratios improved to 18% and 0.77 times, respectively, in 2011 from 22% and 1.39 times, respectively, in 2010. Common and preferred share issuance totaling $2.0 billion (including dividends paid in shares) strengthened its key credit metrics and liquidity position, with $3.3 billion of bank facility availability and $1.8 billion of cash at December 31, 2011.

DBRS expects Husky to maintain its conservative financial profile, with only modest weakening of its key credit metrics relative to year-end 2010 levels during the high capex period through 2015, as well as making significant progress on its upstream operational targets over the period in order to maintain the current ratings.

It was another day of little direction for the Canadian preferred share market, with PerpetualPremiums down 9bp, FixedResets gaining 3bp and DeemedRetractibles off 5bp. The market was affected by a new issue of ELF 5.50% Straight Perpetuals; given the lack of overall movement, the Performance Highlights table is surprisingly lengthy, with Floaters doing quite well, presumably due to speculation about future increases in the BoC overnight rate. Volume remained low.

Looks like the voluntary ha-ha Greek debt swap is done:

Private investors agreed to swap about 85 percent of their Greek government bonds for new securities in the biggest sovereign debt restructuring in history, according to a banker briefed on the results.
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While Greece would prefer a voluntary deal, the government has said it will use so-called collective action clauses to force holders of Greek-law bonds into the swap if the private sector involvement fell short and it got approval from investors to change the bonds’ terms. The Greek government had said it wanted participation above 90 percent and was seeking a minimum level of 75 percent.

“Ideally we get above 90 and it doesn’t need to be done,” said Geoffrey Yu, a currency analyst at UBS AG, said in an interview with Bloomberg Television’s Caroline Hyde yesterday.

Compelling holdouts to take part would likely trigger insurance contracts on the debt known as credit default swaps.

“We don’t see the Greeks failing to get a deal because the risk for everyone involved is just too high,” Tobias Basse, a cross market strategist at Norddeutsche Landesbank, said yesterday in a telephone interview.

An interesting game of Prisoners’ Dilemma! I wonder if the politicians will be able to bear the thought that non-participants will make good profits?

The BoC Rate was left unchanged:

Recent developments suggest that the outlook for the Canadian economy is marginally improved from the January MPR. Although the economy will likely grow faster than forecast in the first quarter due to temporary factors, underlying economic momentum remains around trend, balancing domestic strength and external weakness. Private demand is now expected to be slightly stronger than projected, owing to improved sentiment and highly-supportive financial conditions. Canadian household spending is expected to remain high relative to GDP as households add to their debt burden, which remains the biggest domestic risk. Net exports have been supported by stronger-than-anticipated U.S. activity but are expected to contribute little to growth, reflecting still-moderate foreign demand and ongoing competitiveness challenges, including the persistent strength of the Canadian dollar.

The profile for core and total CPI inflation is somewhat firmer than previously anticipated as a result of reduced economic slack and higher oil prices. After moderating in the second quarter, total inflation is expected, along with core inflation, to be around 2 per cent over the forecast horizon, reflecting the combination of modest growth of labour compensation, an economy operating around its potential over time, and well-anchored inflation expectations.

Reflecting all of these factors, the Bank has decided to maintain the target for the overnight rate at 1 per cent.

The thugs in Ottawa reaffirmed their committment to central planning:

Federal Labour Minister Lisa Raitt has warded off threatened work stoppages at Air Canada, blocking a strike by ground crew and a lockout of pilots planned for March break.

It was a mild day for the Canadian preferred share market, with PerpetualPremiums up 4bp, FixedResets gaining 1bp and DeemedRetractibles winning 6bp. There was only one issue in the Performance Highlights table. Volume was extremely low.