July 31, 2007

Month end, and a funny day in the markets! American equities were hit, with a few companies exposed to sub-prime taking the brunt; Canadian equities stayed even, thanks to a CAD 5.8-billion takeover bid for Western Oil Sands by Marathon Oil.  

Treasuries were strong, while Canadas were up a tad, further widening the rate gap … and I do mean widening! For purposes of US/Canada spreads, the vocabulary was established long, long ago, and “widening” means “Canada did worse”. Always.

The differing behaviour is due to – you guessed it! – sub-prime, other junk and hedge funds. Bear Stearns suspended redemptions in another fund, while Macquarie Fortress announced a monthly return of -25% on its high-yield (not sub-prime!) funds.  Three French funds are toast, due to the classic:

“Like many actors, we have tried to revitalize the performance of our funds by investing in CDOs,” Arnaud Ploix, a spokesman for Paris-based Oddo, said in an interview today. “Like others, we noticed recent problems with short-term liquidity and were caught out by the subprime dilemma.”

Still … carnage means carrion, so there are some happy people out there (besides Deutsche Bank!). It’s probably a good time to short hedge funds! But you know things are getting interesting when three super-major dealers’ bonds trade as junk!

But take a break for some perspective:

High-yield, high-risk bonds lost 3.1 percent in July, their worst monthly performance since 2002, as concerns about an onslaught of debt to finance leveraged buyouts drove down prices.

Returning to our more normal and much more interesting apocalyptic screaming, there are musings that the USD 37.2-billion takeover of TXU is at risk, with the suddenly nervous financiers tempted to pay a billion bucks to get out of the deal. Observant readers will not that both amounts are oddly reminiscent of the BCE / Teachers’ agreement, but the musings are rebutted on another news service. Trial balloon? Chatter from clerks? Who knows? There would be a big reputational hit to take.

Meanwhile, back in the real economy (remember that?) US Inflation news was reasonably encouraging. There is no word yet on how third-tranche double-knockout inflation swaptions reacted to this story.

It looks like Murdoch will buy Dow Jones. It is not yet clear how much he will bid for Prefblog. Yo! Murdoch! Call me!

Note that these indices are experimental; the absolute and relative daily values are expected to change in the final version. In this version, index values are based at 1,000.0 on 2006-6-30
Index Mean Current Yield (at bid) Mean YTW Mean Average Trading Value Mean Mod Dur (YTW) Issues Day’s Perf. Index Value
Ratchet 4.93% 4.92% 25,041 15.63 2 +0.2060% 1,039.4
Fixed-Floater 4.98% 5.11% 131,615 15.46 8 -0.0252% 1,021.5
Floater 4.85% 1.06% 76,954 11.52 4 +0.0202% 1,049.6
Op. Retract 4.84% 4.07% 85,789 3.12 16 -0.0348% 1,020.3
Split-Share 5.06% 4.60% 102,302 3.93 17 -0.1769% 1,046.5
Interest Bearing 6.25% 6.67% 62,938 4.65 3 +0.1383% 1,031.7
Perpetual-Premium 5.54% 5.23% 114,037 5.93 26 -0.1430% 1,022.0
Perpetual-Discount 5.08% 5.12% 330,656 15.31 38 +0.0585% 973.3
Major Price Changes
Issue Index Change Notes
BNA.PR.B SplitShare (for now! Will be “Scraps” after rebalancing, due to volume concerns) -1.9522% Now with a pre-tax bid-YTW of 5.32% based on a bid of 24.61 and a hardMaturity 2016-3-25 at 25.00
CFS.PR.A SplitShare -1.3834% Giving up yesterday’s gains. Now with a pre-tax bid-YTW of 4.36% based on a bid of 9.98 and a hardMaturity 2012-1-31 at 10.00.
LFE.PR.A SplitShare +1.2597% Now with a pre-tax bid-YTW of 4.31% based on a bid of 10.45 and a hardMaturity 2012-12-1 at 10.00
Volume Highlights
Issue Index Volume Notes
BMO.PR.J PerpetualDiscount 65,700 Now with a pre-tax bid-YTW of 4.97% based on a bid of 23.01 and a limitMaturity.
MFC.PR.A OpRet 59,790 Now with a pre-tax bid-YTW of 4.29% based on a bid of 24.82 and a softMaturity 2015-12-18 at 25.00.
BAM.PR.H OpRet 52,447 Nesbitt crossed 50,000 at 26.60. Now with a pre-tax bid-YTW of 3.28% based on a bid of 26.60 and a call 2008-10-30 at 25.75.
GWO.PR.E OpRet 33,905 RBC crossed 30,000 at 25.80. Now with a pre-tax bid-YTW of 3.96% based on a bid of 25.76 and a call 2011-4-30 at 25.00. A related issue, GWL.PR.L, has recently been called and there is an eagerly awaited (by me, anyway) earnings announcement tomorrow.
CM.PR.J PerpetualDiscount 19,120 Now with a pre-tax bid-YTW of 5.00% based on a bid of 22.62 and a limitMaturity.

There were fourteen other $25-equivalent index-included issues trading over 10,000 shares today.

One Response to “July 31, 2007”

  1. […] Yesterday I highlighted a Bloomberg story claiming that some major brokerage bonds were trading as junk. Tom Graff says that’s a load of hooey, and provides some examples of bellwether junk bonds vs. the brokers of interest … broker spreads are wide, he says, but not actually junk! […]

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