PrefBlog

Nothing happened today.

It was another day of solid, if slowing, recovery for the Canadian preferred share market, with PerpetualPremiums winning 22bp, FixedResets up 15bp and DeemedRetractibles gaining 5bp. There is another lengthy Performance Highlights table, which pales in comparison only to how long it has been in previous weeks. Volume was above average.

The Fed is trying to get the show back on the road:

Federal Reserve officials stepped up their campaign to stem an increase in long-term borrowing costs that threatens to blunt the U.S. expansion and sought to clarify comments by Chairman Ben S. Bernanke that sparked turmoil in global financial markets.

William C. Dudley, president of the Federal Reserve Bank of New York, said any decision to reduce the pace of asset purchases wouldn’t represent a withdrawal of stimulus, and that an increase in the Fed’s benchmark interest rate is “very likely to be a long way off.” He said bond purchases could be prolonged if economic performance fails to meet the Fed’s forecasts.
…
[Atlanta Fed President Dennis] Lockhart, using a smoking metaphor, said the investors had misinterpreted the Chairman’s remarks. “It seems to me the Chairman said we’ll use the patch, and use it flexibly, and some in the markets reacted as if he said ‘cold turkey,” Lockhart said in a speech to the Kiwanis Club of Marietta in Georgia.

[Fed Governor Jerome ] Powell said and decision to reduce purchases would depend on economic data, and that there’s no set timetable.

“I want to emphasize the importance of data over date,” Powell said at the Bipartisan Policy Center in Washington. “In all likelihood, the current” large-scale asset purchases “will continue for some time.”

There was continued recovery for the Canadian preferred share market today, with PerpetualPremiums up 30bp, FixedResets gaining 19bp and DeemedRetractibles winning 46bp. There was, naturally enough, another bumper harvest of Performance Highlights. Volume was average.

Who says Canada’s big financial institutions aren’t responsive and socially forward-looking? They have demonstrated yet again their concern about the financial comfort of the mentally deficient:

A group including Royal Bank of Canada and five other large investment firms is launching a competitor to the Toronto Stock Exchange, which handles the most trading in Canada.

The new market is designed to attract investors who are upset with what they see as unfair competition from high-frequency traders, who use ultrafast computers to exploit market quirks or to try to get ahead of other investors. The success of the new exchange may hinge on how much discontent there is with high-frequency trading (HFT) activity.
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The plan is the product of months of work by RBC and a group of supporters including mutual fund giants IGM Financial Inc. and CI Financial Corp., Canadian pension fund PSP Investments and international brokerages ITG and Barclays.

‘Boo-hoo-hoo!’ cry the traders, “Our lunch is being eaten by a mob of parvenu geeks who understand these complicated computer thingamajigs! Save us, save us!’

‘Certainly!’ answer the bosses. ‘We’ll open up a new exchange that makes competition illegal! That will boost profits and cover up our incompetence!’

‘Great idea!’ enthuse the regulators. ‘Just give us a little cut of the take and we’ll make the Competition Act … go away.’

Aequitas, naturally enough, claims its major purpose is to enable double-dipping on transaction fees paid by clients:

Our stakeholders are professional money managers, pension funds, institutional and retail brokers and Canadian issuers, who believe there should be a level playing field for all market participants. A new and different exchange that strikes the right balance between liquidity, price discovery and cost efficiency, and enhances markets for the long-term investor.

It was another day of impressive bounce-back for the Canadian preferred share market, with PerpetualPremiums winning 66bp, FixedResets gaining 26bp and DeemedRetractibles up 65bp. The Performance Highlights table is suitably lengthy. Volume was very high.

PerpetualDiscounts now yield 5.65%, equivalent to 7.34% interest at the standard equivalency factor of 1.3x. Long Corporates now yield 4.65%, so the pre-tax interest-equivalent spread is now about 270bp, hugely elevated from post-Crunch norms and from the 235bp reported June 12.

In today’s news, a politician announced that insurance companies have lots of money so people should be encouraged to build on floodplains:

Insurance companies are between a rock and a hard place. The potential cost of overland flood insurance is enormous but, at the same time, Feltmate said companies are aware there are repercussions for the industry’s already dismal image in continuing to allow victims of devastating floods to “go apoplectic” when they discover they’re not covered.

Moreover, if the industry doesn’t deal with the issue itself, he said the government could impose a solution that is less palatable.

Immigration Minister Jason Kenney, the minister responsible for southern Alberta, strongly encouraged insurance companies on Monday to pay the claims of people whose homes were damaged by both backed up water and overland flooding, without being overly nit-picky about the exact cause of the damage.

Or, to put it another way:

The map of flood plain for 70-yr flood is shown in next page. Much of Downtown, Sunnyside, Bowness, and other residential areas are under water. This size of flood has not occurred since 1932, but it could occur anytime.

The City proposed management plans, but met with great disfavor by community group, who were worried that property values would decline if hazard zones were officially declared.

I grumbled about the closing quote on GWO.PR.I yesterday …. it turns out that most of the problem was the ridiculous TMX Close != Last issue. Some very expensive data purchased from the TMX has revealed that the closing quote was 21.75-21, 5×5 … a pretty wide spread, but not as nonsencical as the 21.01-22.21 last quote which, in their infinite wisdom, the TMX has decided to sell exclusively and is usually reported as the “closing” quote.

The imminent end of the world forecast by the Canadian preferred share market was postponed today, with PerpetualPremiums up 50bp, FixedResets gaining 34bp and DeemedRetractibles winning 101bp. These rather attractive index numbers masked a fair bit of chopping and changing, with there being a fair number of losers on the Performance Highlights list.

Nice quote from Richard Fisher of the Dallas Fed:

Investors shouldn’t overreact to the central bank’s plans to reduce the pace of asset purchases, Fisher said in an interview with the Financial Times published today on its web site. Investors behaved like “feral hogs” after the June 19 comments by Bernanke, he said, according to the newspaper.

Nothing moves as quickly as retail:

According to TrimTabs Investment Research, investors are selling bond-related investments at a record pace, with $47.2-billion (U.S.) flowing out of U.S. bond mutual funds and exchange-traded funds so far in June, easily exceeding the record of $41.8-billion set in October, 2008, during the financial panic.

Meanwhile, at the Canadian preferred share investor convention:

The Canadian preferred share market was left a shambles after a day of slaughter, with PerpetualPremiums losing 158bp, FixedResets off 78bp and DeemedRetractibles down 123bp. The Performance Highlights table is suitably ridiculous with … um … LOTS! That’s right, LOTS of entries … and a solitary winner. Volume was gargantuan.