PrefBlog

DBRS has concluded that the Brookfield Asset Management / General Growth Properties deal, as confirmed, continues to be credit-neutral. The original PrefBlog post on this issue has been updated with the link.

Volume continued to be elevated and the Canadian preferred share market continued to get hit, with PerpetualDiscounts down 32bp on the day and FixedResets losing 7bp.

Greek bonds are getting hammered:

Europe’s week-old rescue plan for Greece has so far failed to do what its leaders predicted: reduce borrowing costs for the region’s most indebted country.

The yield on 10-year Greek government bonds has increased 24 basis points to 6.522 percent since EU leaders agreed to the aid blueprint on March 25. That’s the highest in a month and more than double the rate paid by Germany. Seven-year bonds sold by Greece on March 29 fell for a second day today.

“What they were hoping for was to set up some sort of arrangement that never has to be used,” said Phyllis Reed, head of bond research in London at Kleinwort Benson, which manages about $32 billion. “The markets have sniffed that out and it seems like we’re heading back to square one.”

The Brookfield/General Growth affair is winding its way through court:

General Growth Properties Inc.’s proposal to exit bankruptcy with funding from Brookfield Asset Management Inc. has a clause that will give the company until the end of the year to complete a takeover deal with another party, according to two people with knowledge of the plan.
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The provision would give Chicago-based General Growth time to explore a takeover bid from Simon Property Group Inc., whose $10 billion offer was turned down by its rival last month. Simon is preparing a new bid, according to a person with knowledge of that plan. Brookfield’s plan is subject to the approval of U.S. Bankruptcy Judge Allan Gropper, who gave General Growth an Aug. 26 deadline to control its case.

Citigroup has spent a lot of money upgrading its algorithmic trading software:

Citigroup Inc. is overhauling its platform of trading strategies in an attempt to grow its share of U.S. equities from 14 percent, according to Young Kang, global head of algorithmic products at the firm.
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A global group of 20 quantitative analysts and more than 50 developers, overseen by Kang, built the algorithms and the technology supporting the new platform, which has been used on Citigroup’s cash equities and program trading desks. The strategies have been tested in recent months by some hedge funds and institutional clients.
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Citigroup is also making changes to ColorBook, the smart router from Lava Trading, a unit within the broker, to execute orders faster. Smart routers are used by brokers to craft an execution strategy for the smaller orders generated once an algorithm or trading desk has decided how to transact a stock.

ColorBook currently executes orders in 700 microseconds, or 0.0007 second, Swanson said. The firm is trying to reduce that to 200 microseconds.

There is as yet no word on the take-up of the WFS warrants, which expired today out of the money, or regarding the SBN warrants, likewise.

Volume was highly elevated again today as the Canadian preferred share market staggered into quarter end. PerpetualDiscounts were down 35bp while FixedResets lost 38bp to take the yield on the latter index back above 3.50%, to 3.55%. The only winner in the performance highlights is W.PR.H, which is merely a dead-cat bounce from yesterday.

The yield on PerpetualDiscounts is now 6.16%, equivalent to 8.62% interest at the standard equivalency factor of 1.4x. Long Corporates now yield about 5.8%, having achieved a total return of +88bp on the month and +5.02% on the year-to-date, so the pre-tax interest-equivalent spread is now about 285bp, a sharp increase from the 265bp reported March 24 and getting very close to their one-year high in the low 290s.

RBC is expanding its US investment banking business:

RBC Capital Markets plans to be a top 10 investment bank in the U.S. by attracting business from American companies worth as much as $10 billion, five times larger than its traditional client base.

“Our goal over the next two to three years is to be top 10 in the U.S. market,” said Blair Fleming, who heads the U.S. investment-banking unit of Royal Bank of Canada in New York.

It’s an interesting strategy in light of the recent deprecation of earnings volatility.

Global corporates are doing well this quarter:

Corporate bonds are rallying for the fourth straight quarter, the longest streak since 2004, extending a record advance as 72 percent of companies beat analysts’ earnings expectations.

The securities returned 2.6 percent this quarter through March 30, following a 16.3 percent gain in 2009, according to a Bank of America Merrill Lynch index. The extra yield, or spread, investors demand to own corporate bonds fell 0.26 percentage point since year-end relative to benchmarks to 1.5 percentage points as of yesterday, the narrowest since November 2007.

Company debt rallied on signs the global economy is improving, with U.S. consumer confidence gaining in March and corporate defaults declining from record levels. Borrowing costs declined to the lowest since 2005, spurring $730 billion of bond issuance globally this quarter, a 25 percent increase from the final period of last year.

The Canadian DEX Universe All Corporate Bond Index is up 2.06% year-to-date.

Volume soared today in the Canadian preferred share market in a rush for the exits … quarter-end window dressing? PerpetualDiscounts were clobbered, losing 67bp, while FixedResets were not immune to the downdraft, losing 28bp. A lengthy performance highlights list is comprised entirely of losers

I was flattered and amused to read on the Feldsparia blog:

The February 3, 2010 edition of the Report on Business had this image of James Hymas, actually the image above is cropped from a larger photo that appeared in the physical paper, in a article about preferred shares, An investor with a preference for preferreds. What I found interesting is that everything in the photograph, the man at the desk with flowing beard, the desk, the Persian carpet, the fireplace, the suit look as through they are from 1899. When I asked several people to point out what doesn’t belong it woulkd take them a while to find the laptop.

And I am pleased to report that I did not go insane on September 24, 2007. Readers will recall that I asked:

Does the phrase “Abu Dhabi Honeymoon” ring a bell with anybody besides me? I was convinced it was a movie title, but it’s not listed on IMDB. Maybe it was a fake movie that the Flintstones went to see, or something? Please help!

Well, I have now discovered that it isn’t “Abu Dhabi Honeymoon”, it’s Aba Daba Honeymoon. And it’s not a movie, it’s a song; which has been charmingly covered. So my memory was a little off, sure, but that’s a lot better than being completely nuts.

Greece will offer 7-year debt at 336bp over Bunds:

Greece will price the 5 billion euros ($6.7 billion) of seven-year bonds to yield 310 basis points more than the benchmark mid-swap rate, according to a banker involved in the transaction, who declined to be identified before the sale is completed.

The bonds’ 6 percent yield equates to about 336 basis points more than seven-year German bunds, Europe’s benchmark government securities. That compares with a yield premium, or spread, of 61 basis points for similar-maturity Spanish debt and 114 basis points on Portugal’s government bonds due 2017, according to composite prices on Bloomberg. Italy’s seven-year bonds yield 45 basis points more than bunds, the prices show.

“Greece’s borrowing costs exceed those of Spain and Portugal as it still needs to convince the market that it can roll over existing debt,” said Michiel De Bruin, who will probably buy the securities for the $28 billion of assets he helps manage as head of euro government bonds at F&C Investments in Amsterdam. “Only then is it likely that borrowing costs will fall.”

Union Bank of Singapore had some good results from fixed-income trading:

UBS AG generated about $2.3 billion of revenue at its fixed-income division in the first quarter as Switzerland’s biggest bank rebuilt the unit following record losses, people with knowledge of the situation said.

UBS may have revenue of almost $1 billion from credit alone, said the people, who declined to be identified because the figures haven’t been publicly released. UBS hired about 350 people at its fixed-income unit, which includes emerging markets and foreign exchange, in the past 12 months.

The performance would mark a reversal of fortune for the bank’s debt unit, which was responsible for most of the $57.5 billion in writedowns and losses during the credit crisis. Zurich-based UBS had a loss of 1.97 billion Swiss francs ($1.85 billion) from fixed-income sales and trading in the first quarter of 2009, the company reported.

Let’s hope – for our own well-being, if not theirs – that they remember they’re traders, not investors!

A poor day for the Canadian preferred share market, with PerpetualDiscounts down 23bp and FixedResets down 15bp, but volume continued to be heavy – particularly for FixedResets, which scored a shut-out on the volume highlights table, possibly aided by the announcement of a new BNS FixedReset 3.85%+100 issue.