PrefBlog

The revolving door revolved again:

The former chief of staff to federal finance minister Jim Flaherty has left Ottawa to take on a new role at the Bank of Nova Scotia.

Kevin McCarthy will become a director in Scotiabank’s Canadian banking unit starting in November.

It always pays to remind the political hacks of what you can do for them – you never know when you’re going to have to kowtow. Three cheers for the Crony Capitalist Snivel Servants’ Superannuation Scheme!

Who wants to buy some bonds?

Verizon Communications Inc. (VZ) is poised to pay investors a premium on an unprecedented $49 billion of bonds, a cost Apple Inc. (AAPL) escaped during its then-record $17 billion offering four months ago.

The telephone company may sell $11 billion of 10-year bonds today at a yield that’s 225 basis points more than Treasuries, according to a person with knowledge of the issue. The yield is 47 basis points more than investors demand to own bonds with similar maturities and BBB ratings, according to data compiled by Bloomberg.
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Along with $4 billion of floating-rate debt due in 2016 and 2018, Verizon also plans to sell $4.25 billion of three-year, fixed-rate notes that may yield 165 basis points more than Treasuries; $4.75 billion of five-year debt with a spread of 190 basis points; $4 billion of seven-year securities that pay 215; $6 billion of 20-year bonds yielding 250 more than benchmarks; and a $15 billion, 30-year portion with a spread of 265, the person said.

DBRS considers that the GMP – Richardson – Macquarie dance has no effects on the creditworthiness of GMP.PR.B:

Richardson-GMP, which is roughly one third owned by GMP, announced last night an agreement to purchase MPW for $132 million. Richardson-GMP will be issuing $60 million of preferred shares, half of which will be purchased by GMP, and $30 million of common shares of which GMP will purchase roughly $10 million. GMP will use existing cash resources to fund its net $40 million incremental investment in Richardson-GMP.

While Richardson-GMP has not been contributing much to GMP’s bottom line, it has been modestly profitable recently. With MPW adding nearly $13 billion in assets under administration to Richardson-GMP’s existing $15 billion, the incremental scale will improve Richardson-GMP’s profitability. DBRS views the private wealth business as a diversifying influence in GMP’s profitability profile, but this acquisition does not overcome the fundamental capital market weakness challenges which are the primary reason for the existing Negative trend.

IGM, proud issuer of IGM.PR.B, was confirmed at Pfd-2(high) by DBRS:

With the help of its unique exclusive consultant network, IG has returned to positive net sales during the first half of 2013, after experiencing net redemptions of $149 million during the same period in 2012. The IG distribution model – which relies on close communication between consultants and customers – yields a lower redemption rate (9.8% twelve-month trailing redemption rate on long-term mutual funds at June 30, 2013) than that of the industry (16.5% industry average, provided by IGM).

By contrast, the Mackenzie business model, which caters to third-party distribution, is more vulnerable to underlying fund performance and investor sentiment, which is reflected in the higher redemption rate of 16.2% for the twelve months trailing Q2 2013. Overall assets under management (AUM) is up, helped by favourable equity market performance and modest net sales so far in 2013. When investor sentiment towards equities stabilizes, Mackenzie funds should fare well versus its peers.
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In addition to strong profitability, the Company’s credit rating also benefits from strong cash flows (which easily cover the upfront distribution costs of mutual fund sales), strong liquidity and a conservative financial profile. Debt plus preferred shares-to-EBITDA was 1.1 times (x) in 2012 and for H1 2013, which is conservative. The Company’s ratio of debt plus preferred shares-to-total capitalization remains appropriate for the rating, at just over 25%, down noticeably from 2010.

The Canadian preferred share market came back a little today, with PerpetualDiscounts winning 23bp, FixedResets gaining 5bp and DeemedRetractibles up 12bp. Volatility continues to be high, with another lengthy Performance Highlights table heavily skewed towards winners, with BAM PerpetualDiscount issues prominent. Volume was slightly above average.

PerpetualDiscounts now yield 5.78%, equivalent to 7.51% interest at the standard equivalency factor of 1.3x. Long Corporates now yield about 5.0%, so the pre-tax interest-equivalent spread (in this context, the Seniority Spread) is now about 250bp, a sharp decline from the 270bp reported September 4, as PerpetualDiscounts are, overall, unchanged while long corporates got thumped for 20bp.

Jayson Horner, chief executive officer, president, and co-founder of CanDeal, writes a piece in the Globe on electronic bond trading:

As regulators seek to enact change, they must balance their transparency objectives with the needs of market participants, respecting the unique properties and characteristics of each market and its participants.

An optimally transparent solution will facilitate price discovery, but should not compromise an investor’s ability to successfully execute a trade strategy, or obstruct liquidity providers looking to prudently manage their risk. Interestingly, the knock-on effect of excessive transparency can ultimately also harm the retail investor to the extent that institutional investors act as fiduciaries for their benefit – through for example third-party asset management, pension plans and insurance.

That’s certainly the right idea, but harm to retail investors doesn’t stop there. Harm is also caused when dealers can’t make money out of corporate debt in the public markets, so they become reluctant to finance inventory, which in turn encourages issuers to go the private placement route. This is happening in the States; I have often railed in this blog about the harm that TRACE is doing to all participants in the US corporate bond market.

As I have also said before, regulators must ask themselves: what is the market for? Specifically, what is this market for? Is it something that, ideally, will allow grandma to invest her $5,000 at a so-called fair price? Or is it something that, ideally, will allow Very Big Manufacturing, Inc., to issue $500-million in debt with entirely reasonable prospects of rolling it on maturity?

Grandma’s got the alternative of mutual funds and ETFs which, for most people, make more sense than individual bond purchases anyway. Very Big Manufacturing, Inc.’s alternatives are to look for money abroad (at much higher risk and expense), or issue as a private placement (reducing investor choice), or simply not to expand due to financing difficulties.

It was a poor day for the Canadian preferred share market, with PerpetualDiscounts off 10bp, FixedResets down 20bp and DeemedRetractibles losing 23bp. The Performance Highlights table is surprisingly lengthy and comprised almost entirely of losers. Volume was extremely high.

Tapering chatter continues…:

[PNC Financial Services Group chief economist Stuart] Hoffman’s forecast is in line with the median estimate in a Bloomberg survey of 34 economists after yesterday’s jobs report showing the Fed is likely to reduce asset purchases to $75 billion this month. The Federal Open Market Committee will slow Treasury purchases to $35 billion from $45 billion while maintaining mortgage-bond buying at $40 billion, according to the survey. That pace was unchanged from an Aug. 9-13 poll.
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Kansas City Fed President Esther George, who has consistently dissented against additional stimulus, yesterday called for a tapering of $15 billion at this month’s meeting.

“An appropriate next step toward normalizing monetary policy could be to reduce the pace of purchases from $85 billion to something around $70 billion per month,” George said in a speech in Omaha, Nebraska. She said doing so at the next meeting is “appropriate” and future purchases could be split evenly between Treasuries and mortgage-backed securities.

Chicago Fed President Charles Evans, who has consistently supported record stimulus, said in a speech yesterday in Greenville, South Carolina, that the central bank shouldn’t taper until inflation and economic growth pick up.

Evans, who votes on FOMC policy this year, later told reporters he has an “open mind” on whether to taper buying this month.

There’s a lot of corporate debt being issued in Canada:

Proceeds from new issuance of investment grade corporate debt are up 29 per cent year-to-date, compared to the same period last year, according to figures from Thomson Reuters.
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High yield or investment grade, Canadian companies are expected to keep pumping out debt for the rest of the year. RBC raised its Canadian Corporate bond issuance target by $5-billion to $105-billion by the end of the year thanks to two main factors in this increase: strong issuance so far, prospective issuance in the pipeline. Retail, financial and utilities are all expected to contribute to supply.

Regulators come up with many ideas, but this one is special:

Canada’s popular mortgage investment funds are facing pressure to convert into public companies because securities regulators have proposed new rules that would bar them from investing in mortgages without government loan guarantees.

Timbercreek Asset Management, which manages two publicly traded mortgage investment corporations with over $3-billion of assets under management, will hold a shareholder vote Sept. 12 to seek approval to convert both from closed-end investment funds into publicly traded companies.

The firm says it is making the move to conform with proposed new rules from the Canadian Securities Administrators (CSA) – an umbrella group for Canada’s provincial securities commissions – that would prohibit closed-end funds from investing in mortgages that are not guaranteed by a government insurer such as Canada Mortgage and Housing Corp.
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In a notice earlier this year, regulators said the emergence of MICs raises questions about whether their active business strategies are appropriate for the closed-end fund model, which was traditionally intended to hold more passive investments. Closed-end funds have historically been aimed at retail investors who may not understand the business model of a fund that has an actively managed operating business.

Let’s not have a day go by without some new tapering chatter:

The good news may be bad news for the Federal Reserve as it considers when to begin scaling back its stimulus.

While unemployment dropped last month to 7.3 percent, the lowest level since December 2008, the decline occurred because of contraction in the workforce, not because more people got jobs. Labor-force participation — the share of working-age people either holding a job or looking for one — stands at a 35-year low.
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The jobless rate is important because Chairman Ben S. Bernanke and his colleagues have established it as the lodestar for policy. Bernanke has said he expects the Fed to complete its asset-purchase program in the middle of next year when unemployment is around 7 percent.

So long as inflation remains contained, the central bank has said it won’t even consider raising its benchmark interest rate until unemployment falls to 6.5 percent. The Fed cut its target for the overnight interbank rate effectively to zero in December 2008 and has held it at that record low.

A key question facing policy makers is how much of the decline in the participation rate is structural and long-lasting and how much is cyclical and temporary.
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A July 2013 paper by Boston Fed economists Michelle Barnes, Fabia Gumbau-Brisa and Giovanni Olivei concluded that a significant portion of the drop since the start of the last recession results from demographic and other developments that probably will persist.

“About two-thirds of the decline has been trend” due to secular forces, Olivei said. He reckons the participation rate now is about three-quarters of a percentage point below where it otherwise would be because of temporary forces stemming from the 2007-09 recession and the muted recovery since then.

His estimate contrasts with research by Julie Hotchkiss, a senior adviser at the Atlanta Fed. In a paper with Georgia State University’s Fernando Rios-Avila that was published in March, she argues that cyclical influences are all-important in explaining the shrinkage in the labor force.

It was another mixed day for the Canadian preferred share market, with PerpetualDiscounts up 23bp, FixedResets gaining 2bp and DeemedRetractibles off 7bp. The Performance Highlights table was lengthy, but there was no clear pattern other than a preponderance of winners. Volume was below average.

The US jobs number was a fizzle:

Treasuries rose, pushing 10-year note yields down by the most in 10 months, as the economy added fewer jobs than forecast in August, damping speculation the Federal Reserve will slow bond purchases this month.

Yields fell after breaching 3 percent for the first time in two years before the report showed the economy added 169,000 jobs last month, compared with the median forecast of 180,000 in a Bloomberg News survey. Yields remained lower as Russian President Vladimir Putin said Russia will continue to assist Syria if it’s attacked. Fed policy makers are discussing whether the economy has improved enough to start reducing the asset purchases they have used to keep borrowing costs low.

Matthew Klein of Bloomberg has an interesting take on the details:

All of this is disappointing but not so disappointing that it forces the Federal Reserve to deviate from its probable reduction of asset purchases, or quantitative easing, later this month. As Chairman Ben Bernanke and other Fed officials have stated, the default expectation is that asset purchases will have stopped by the time the unemployment rate falls to 7 percent. This is because Fed policy makers no longer believe that asset purchases have a positive impact and also believe that QE comes with costs. Much of the bad news in August can be attributed to a shutdown in the porn-film industry that doesn’t reflect the underlying health of the economy. More importantly, job growth isn’t weak relative to what the Fed has tolerated for years.

One of the big surprises in today’s report was the 6 percent decline in the number of people working in the “motion picture and sound recording industries.” Wags on Twitter proceeded to list their least-favorite summer flops as explanations, but Jim Tankersley at the Washington Post had a better idea: the U.S. porn industry stopped working for a week after an actress tested positive for HIV. Once it became clear that no one else had the disease, work resumed. The one-week shutdown would affect the jobs numbers for the month of August but tells us nothing about the broader state of the U.S. economy. Had those 22,000 people been working, employment growth in August would have modestly beaten expectations. Fed officials are probably writing off this month’s weakness for that very reason.

And it is also of interest to note:

The change in total nonfarm payroll employment for June was revised from +188,000 to +172,000, and the change for July was revised from +162,000 to +104,000. With these revisions, employment gains in June and July combined were 74,000 less than previously reported.

Meanwhile in Canada, we’re all looking for part-time:

The Canadian economy created 59,200 jobs in August, reversing month-earlier losses, fuelled by growth in part-time work.

The gains were nearly three times higher than forecasts and come after Canada shed almost 40,000 jobs in July. The country’s jobless rate eased a notch to 7.1 per cent in August, Statistics Canada said Friday.

Even with last month’s bump, employment gains have averaged 12,000 per month in the past six months, less than half the pace of the 29,000 average increase in the previous six months, the agency noted.
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Employers added 41,800 part-time positions. Full-time jobs rose by 17,400, recouping most but not all of the prior-month losses. The private sector accounted for much of the gains, boosting payrolls by 30,900, while the number of self-employed grew by 19,200 and public-sector headcount rose by 9,000.

Shaw Communications, proud issuer of SJR.PR.A, was confirmed at Pfd-3 by DBRS:

DBRS has today confirmed Shaw Communications Inc.’s (Shaw or the Company) Issuer Rating at BBB, Senior Notes rating at BBB and Preferred Shares rating at Pfd-3. All trends remain Stable. The confirmation reflects the view that the Company’s earnings profile remains adequate and its financial profile remains reasonably sound for the current rating categories. The ratings continue to be supported by Shaw’s incumbent position in western Canada, its large subscriber base and its industry-leading operating margins. The ratings also acknowledge that the intensifying competition, combined with market maturation, is placing increasing pressure on the Company’s subscriber base.
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In terms of financial prolife, DBRS also expects Shaw to remain within a range adequate for the current rating category in the near term. The concern is that pressure on cash flow, combined with the Company’s high dividend payout, may challenge financial flexibility over the longer term. DBRS forecasts that operating cash flow will continue to grow modestly, ranging between $1.35 billion and $1.45 billion in F2014. Capex is expected to rise modestly, to above $900 million. In terms of dividends, DBRS expects Shaw to increase its declared dividend by 5-10% in F2014. As such, DBRS forecasts that the Company will likely end up free cash flow neutral before working capital in F2014. DBRS expects $750 million of annual Cable capex going forward (independent of the completion of the Company’s accelerated capex program over the next three years, which will be funded primarily through asset sales). DBRS continues to note that Shaw’s financial management objectives include maintaining net debt-to-EBITDA in the 2.0x to 2.5x range. If Shaw’s credit metrics are challenged by weakness in operating income and/or higher debt levels, the Company’s ratings could come under pressure.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts gaining 1bp, FixedResets down 11bp and DeemedRetractibles off 4bp. The Performance Highlights table is quite lengthy considering the mildness of the overall move, heavily weighted towards losers. Volume was extremely low.

Wow! Not a nice day to own Treasuries:

Benchmark 10-year yields rose eight basis points, or 0.08 percentage point, to 2.98 percent at 1:49 p.m. New York time, the highest level since July 28, 2011, according to Bloomberg Bond Trader data. The 2.5 percent note due in August 2023 fell 22/32, or $6.88 per $1,000 face amount, to 95 29/32.

The yield is up from a 2013 low of 1.61 percent on May 1 and threatened to breach 3 percent for the first time since July 27, 2011, when lawmakers debated raising the nation’s debt limit.
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Companies boosted employment by 176,000 workers in August from a 198,000 gain in July that was revised down, figures from the Roseland, New Jersey-based ADP showed today. The median forecast of 43 economists surveyed by Bloomberg called for a 184,000 gain.

A Labor Department report tomorrow may show companies added 180,000 workers last month, according to the median estimate in a Bloomberg survey. The unemployment rate probably held at 7.4 percent, the lowest level since December 2008.

Much the same thing happened to Canadas.

And, as might be expected, it was not a nice day for the Canadian preferred share market, with PerpetualDiscounts losing 28bp, FixedResets down 10bp and DeemedRetractibles off 8bp. There is another very lengthy Performance Highlights table, heavily weighted towards the downside. Volume was average.

For all the tapering talk, Canadian policy rates aren’t changing any time soon:

he Bank of Canada today announced that it is maintaining its target for the overnight rate at 1 per cent. The Bank Rate is correspondingly 1 1/4 per cent and the deposit rate is 3/4 per cent.
The global economy continues to expand broadly as expected, but its dynamic has moderated. In the United States, the process of normalization of long-term interest rates has begun in the context of stronger private domestic demand. Recent data, however, point to slightly less momentum overall than anticipated. In Europe, there are early signs of a recovery, and Japan’s situation remains promising. In a number of emerging market economies, financial volatility has increased, adding uncertainty to growth prospects, although China continues to grow at a solid pace. Commodity prices have been relatively stable, with geopolitical stresses putting some upward pressure on global oil prices.

Uncertain global economic conditions appear to be delaying the anticipated rotation of demand in Canada towards exports and investment. While the housing sector has been slightly stronger than anticipated, household credit growth has continued to slow and mortgage interest rates are higher, pointing to a continued constructive evolution of household imbalances. Looking through the choppiness of the recent data, the level of Canada’s GDP is largely consistent with the Bank’s July forecast. The output gap is expected to begin to narrow in 2014.

Inflation in Canada remains subdued. With inflation expectations well-anchored, both core and total CPI inflation are expected to return slowly to 2 per cent as the output gap closes.

Against this backdrop, the Bank has decided to maintain the target for the overnight rate at 1 per cent. As long as there is significant slack in the Canadian economy, the inflation outlook remains muted, and imbalances in the household sector continue to evolve constructively, the considerable monetary policy stimulus currently in place will remain appropriate. Over time, as the normalization of these conditions unfolds, a gradual normalization of policy interest rates can also be expected, consistent with achieving the 2 per cent inflation target.

There’s a new report on Canada’s competitiveness that’s a bit of a joke:

Switzerland and Singapore top the list of most competitive countries in the world in a global ranking that puts Canada in a distant 14th position.

Finland, Germany and the United States round out the top five of this year’s most competitive nations on the World Economic Forum’s annual list, released Wednesday in Geneva. Canada’s ranking was the same as last year. Back in 2009, Canada sat in ninth position.
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Canada fares well in education, efficient financial and labour markets, and its strong institutions. But several factors keep it out of the top 10, among them innovation and business sophistication, where Canada has tumbled to 25th in the rankings.
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The most challenging areas for doing business in Canada both relate to innovation: Access to financing and insufficient capacity to innovate. This country could boost its competitiveness by focusing on innovation – encouraging more spending on research and development, supporting governments’ use of Canadian advanced technology, and boosting collaboration between universities and industry on R&D, the Conference Board said.

Oh yeah, government programmes are going to boost innovation, right. Just like this innovative scheme:

Another witness at the Charbonneau inquiry, engineer Patrice Mathieu, testified on Wednesday that a bid-rigging system also existed in the Quebec City region after 2004. He added that the federal government’s multibillion-dollar infrastructure program was “manna” in the second half of the 2000s, when major firms were colluding to split public projects among themselves.

If the government wants to encourage innovation, it will reduce its programmes, not increase them. Stop mollycoddling the banks, the chicken and egg farmers, the potash cartel, the telecom cartel … open up the country to competition and give people the choice of competing through innovation or starving to death.

Tapering chatter has been fueled by the Beige Book:

Americans spending more on cars and housing helped the economy maintain a “modest to moderate” pace of expansion from early July through late August, even as borrowing costs increased, the Federal Reserve said today.

Consumers spent more on travel and tourism while manufacturing expanded “modestly,” the Fed said today in its Beige Book business survey, which is based on anecdotal reports from its 12 regional banks. Hiring “held steady or increased modestly.”
The Federal Open Market Committee is debating whether growth is sufficient to fuel steady improvement in the job market and warrant tapering the Fed’s $85 billion in monthly bond buying. Speculation the FOMC will dial down purchases at its Sept. 17-18 meeting has roiled financial markets, pushing up U.S. bond yields and contributing to the worst rout in the currencies of developing nations in five years.
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U.S. stocks and Treasury yields maintained gains after release of the report. The Standard & Poor’s 500 Index (SPX) advanced 0.8 percent to 1,652.99 at 2:18 p.m. in New York trading. The yield on the benchmark 10-year Treasury increased 0.03 percentage point to 2.89 percent.

Assiduous Reader KB was kind enough to send me a link with pricing information on the TD Market Growth GICs, unlike the rest of you bums who couldn’t be bothered:

5 year Minimum Return is 5.10%(4)
Maximum Return† is 20%(2)

[Footnotes] (2) Maximum Return is equivalent to the total return over the term of the investment (i.e. not an annualized rate).
(4) Actual return is 1.00% per annum, compounded annually, payable at maturity (equivalent to 5.10% total return)

There’s supposed to be another footnote (marked with a dagger) with respect to the definition of Maximum Return, but this has been omitted with TD’s usual efficiency.

OK, anyway, who are the option specialists here? Who wants to take a stab at valuing the put and call required to make this thing work? Basically, you’re selling a straddle, right? Within the bounds of the possible return, it looks like they pay 100% of the applicable index, although TD does not specify whether they mean total return index or price index … which kinda makes a difference, eh?

An otherwise boring account of Gensler’s battle for turf at the CFTC had an interesting aside:

Even that success may have unintended consequences. Some finance scholars, Wall Street banks and Gensler himself have warned that concentrating trades at a few big clearinghouses that settle trillions of dollars in deals creates a new risk –a potential too-big-to-fail powder keg when the next crisis hits.

Yep. That’s in addition to the moral hazard of unlimited guarantees being given for the Bank of Downtown Plottsville’s derivatives trading.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts down 13bp, FixedResets gaining 8bp and DeemedRetractibles up 27bp. BAM issues were prominent on both sides of the relatively lengthy (considering the overall move) Performance Highlights table, but mainly the downside. Volume was well above average.

PerpetualDiscounts now yield 5.78%, equivalent to 7.51% interest at the standard equivalency factor of 1.3x. Long corporates now yield about 4.8%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 270bp, a slight (and perhaps spurious) decline from the 275bp reported August 28.

TD Bank is really pushing their market growth GICs; does anybody have any pricing information on them? I assume they’re a very expensive product even though they’re subsidized by deposit insurance.

The first batch of jobs number predictions is in:

Employers probably added more workers in August and the jobless rate held at a more than four-year low, signaling a strengthening U.S. labor market that will help sustain growth, economists said before a report this week.

Payrolls rose by 180,000 following a 162,000 gain the prior month, according to the median forecast of 71 economists surveyed by Bloomberg ahead of Labor Department figures Sept. 6. Manufacturing probably cooled after expanding in July at the fastest pace in two years, other data may show.
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Reports last week showed a mixed picture. Gross domestic product expanded at a 2.5 percent annual rate in the second quarter, up from the 1.7 percent pace previously estimated, and the MNI Chicago Report (CHPMINDX)’s measure of business activity grew in August for a fourth consecutive month. In other data, consumer spending rose less than forecast in July, and consumer sentiment dropped in August from a six-year high.

So will the actual number fall short or overshoot? And once it’s done that, what will the market reaction be? Place yer bets, gents, place yer bets!

Asian corporate debt, moaned about on August 26, is attracting more attention:

Asia dollar-denominated bonds have dropped below par for the first time since 2011 as investors pull money out of the region amid concerns that growth is slowing and as currencies from the rupee to rupiah plunge.

Average prices of company debentures in the region fell to 98.61 cents on the dollar on Aug. 22, the least since October 2011, Bank of America Merrill Lynch indexes show. Dollar bonds globally have held above 100 cents since September 2009. Both investment- and non-investment-grade debt in Asia were below par on Aug. 22. The last time that happened was in September 2008, when Lehman Brothers Holdings Inc. collapsed.

S&P is fighting the good fight:

Standard & Poor’s on Tuesday blasted a $5-billion (U.S.) fraud lawsuit by the U.S. government as retaliation for its 2011 decision to strip the country of its triple-A credit rating.

The McGraw Hill Financial Inc. unit was the only major credit rating agency to take away the United States’ top rating, and the only one sued by the U.S. Department of Justice for allegedly misleading banks and credit unions about the credibility of its ratings prior to the 2008 financial crisis.

In a filing with the U.S. District Court in Santa Ana, Calif., S&P said the lawsuit attempts to punish it for exercising its First Amendment free speech rights under the U.S. Constitution, but also seeks “excessive fines” in violation of the Eighth Amendment.

It said the government’s “impermissibly selective, punitive and meritless” lawsuit was brought “in retaliation for defendants’ exercise of their free speech rights with respect to the creditworthiness of the United States of America.”

Treasuries got crushed today:

Treasuries fell the most in a month as a gauge of U.S. manufacturing rose more than forecast in August, reinforcing bets the Federal Reserve will soon announce plans to reduce monetary stimulus.
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Benchmark 10-year yields increased seven basis points, or 0.07 percentage point, to 2.85 percent at 3:50 p.m. New York time, according to Bloomberg Bond Trader data. They jumped the most on an intraday basis since Aug. 1 and touched 2.91 percent, the highest since Aug. 23. The 2.5 percent note due in August 2023 lost 18/32, or $5.63 per $1,000 face amount, to 96 31/32.
Two-year (USGG2YR) note yields rose as much as three basis points to 0.43 percent, the highest level since July 2011. Thirty-year (USGG30YR) bond yields climbed eight basis points to 3.78 percent and touched 3.83 percent, the highest since Aug. 23.

Yield changes were reflected in the Canadian market.

TXPL and TXPL, the Canadian preferred share indices with lots of junk (helps to sell the junk!) and based on closing prices were down 28bp and 24bp, respectively.

Despite this, the investment grade elements of the Canadian preferred share market had a reasonably good day – based on the bid prices – with PerpetualDiscounts gaining 3bp, FixedResets up 5bp and DeemedRetractibles winning 18bp. Volatility was high considering the modesty of the general movement. Volume was on the low side of average.