PrefBlog

A good day for the Canadian preferred share market, with PerpetualPremiums up 10bp, FixedResets winning 22bp and DeemedRetractibles gaining 16bp. PerpetualDiscounts rocketted up 94bp! Good volatility, highly skewed to the upside. Volume was well above average.

PerpetualDiscounts now yield 5.02%, equivalent to 6.53% interest at the standard equivalency factor of 1.3x. Long corporates now yield about 4.6% (maybe just a hair lower) so the pre-tax interest-equivalent spread (which is in this context the Seniority Spread) is now about 195bp, unchanged from the figure reported February 15.

The Greek crisis is resolved! Or is it?:

Seven months of negotiations ended in the pre-dawn hours in Brussels with Greece winning 130 billion euros ($172 billion) in aid it needs to avoid a March bankruptcy. Any respite may prove temporary after it signed up to a program of austerity and economic reform aimed at slashing debt to 120.5 percent of gross domestic product by 2020 from about 160 percent last year.

Even with investors and central bankers chipping in to relieve the debt burden, economists from Citigroup Inc. to Commerzbank AG concluded Greece may again fail to deliver amid a fifth year of recession, looming elections and social unrest. The upshot could be the removal of aid and renewed debate over the merits of fresh assistance before year-end as policy makers shift toward doing more to inoculate the rest of Europe.

I think all they’re doing is providing the incubator for the next Hitler. I wonder what this one will be like. Fortunately, Greece isn’t as large or industrialized or revanchist as 1930 Germany … except for maybe Macedonia.

The internal report isn’t too cheery:

Experts from the European Commission, the European Central Bank and the International Monetary Fund highlighted the risks and questioned the assumption that Greece will be able to return to capital markets in the coming years.

“There is a fundamental tension between the program objectives of reducing debt and improving competitiveness, in that the internal devaluation needed to restore Greece’s competitiveness will inevitably lead to a higher debt to GDP ratio in the near term,” the analysis said.

“Given the risks, the Greek program may thus remain accident-prone, with questions about sustainability hanging over it.”

However, the Europeans are trying very hard to prove the truth of the maxim: Don’t invest in European sovereigns unless you’ve got a little bit of insider pull:

Euro-area central banks will swap the Greek bonds in their investment portfolios for similar securities to avoid enforced losses during a debt restructuring, a euro-area official said.

The swap will happen today and is identical to one the European Central Bank carried out last week with the Greek bonds acquired in its asset-purchase program, the official said. The new Greek bonds will be immune to collective action clauses, or CACs, ensuring central banks don’t incur any losses when a private-sector debt write-down takes place, the official said on condition of anonymity. A spokesman for the Frankfurt-based ECB declined to comment.

The Canadian preferred share market came back a little today,with PerpetualPremiums winning 13bp, FixedResets gaining 7bp and DeemedRetractibles up 5bp. Reasonable volatility, with the Performance Highlights table skewed towards the upside and to insurance issues. Volume was a little above average.

Greece is preparing a collective action clause:

The Greek government is drawing up legislation that could be used to impose losses on investors who don’t support the debt swap that’s part of the country’s new bailout package, said two euro-region officials familiar with the situation.

The law may be introduced to parliament in Athens in the coming days, said one of the officials, who spoke on condition of anonymity because the deliberations are confidential. Euro region finance ministers are prepared to back the use of so- called collective action clauses if a voluntary debt swap doesn’t draw enough participation, the other person said.

Collective action will trigger payments on Credit Default Swaps. But here’s the really disgraceful part:

The European Central Bank is swapping its Greek bonds for new ones to ensure it isn’t forced to take losses in a debt restructuring, three euro-area officials said.

The Frankfurt-based ECB is exchanging its Greek bonds for bonds of an identical structure and nominal value, the only difference being that they would be exempt from so-called collective action clauses, the officials said late yesterday on condition of anonymity. One said the bonds have a face value of about 50 billion euros ($65 billion).

It was a mixed day for the Canadian preferred share market, with PerpetualPremiums gaining 8bp, FixedResets off 1bp and DeemedRetractibles also gaining 8bp. There was good volatility, with all three Floaters listed in the Performance Highlights on the losing side. Volume was average.

The Europeans are going to solve all their problems by monetizing the Greek default:

European governments are considering cutting interest rates on emergency loans to Greece and using contributions from the European Central Bank to plug a new financing gap in the second bailout program for Athens, two people familiar with the discussions said.

Finance ministers wrangled over how to close the funding hole in a teleconference last night after seeing estimates that Greece’s debt would fall to 129 percent of gross domestic product in 2020, missing a target of 120 percent, said the people, who declined to be named because the talks are still in progress. Last year, the level was about 160 percent.

It was another down day for the Canadian preferred share market, with PerpetualPremiums off 5bp, and both FixedResets and DeemedRetractibles losing 31bp. PerpetualDiscounts (all four of them) were hammered for 194bp. Lots of volatility, heavily skewed towards losers. Volume was above average.