OK, everybody, we can relax now! George W. Bush has stated “I’m not an economist, but my hope is that the market, if it functions normally, will be able to yield a soft landing. That’s kind of what it looks like so far.” The equity markets immediately responded with a huge advances, both in the US and in Canada.
Sub-prime is old news, as evidenced by the fact that the IMF is pontifficating on the subject. The Europeans say investors can take their lumps anyway. Of far greater interest is rumblings from China that they may be willing, under certain circumstances, to flex their treasury muscle and use their currency reserves as a political weapon. Bush says that this would be foolhardy, and it’s therefore surprising that anybody is still taking the threat seriously. But … there is some concern the Fed doesn’t have the same influence over longer-term rates that it used to. Tom Graff has some comments and I have previously noted the effect of Chinese investment on Treasuries. Their trade surplus rose again in July, so they’ve got plenty of ammunition.
Treasuries got thumped, and whether that’s a rebound of the flight to quality or a China Syndrome is a matter of taste. Canadas followed Treasuries, unnoticed by media and bloggers.
The Wall Street Murdoch is Magnificent Journal posted an interesting comparison of credit markets, now vs. the LCTM blow-up. Given the state of economic education, however, nobody will notice.
It was a good day in pref-land, with volume picking up a bit and numerous “Scraps” issues (those not included in the indices due to either low volume or poor credit) gaining over 1% in price (bid / bid). The PerpetualDiscount index continued to shine and – who knows – might even make it back to its 2006-6-30 level of 1,000.00 before too long.
BAM had an interesting day, with two of its floating-rate issues and one of its perpetualDiscounts gaining over 1% (bid / bid). There seems to have been some pickup in activity in the BAM.PR.M / BAM.PR.N issues but whether this is meaningful remains to be seen. The fund has a position! An attractive yield, anyway – but I will confess I don’t know how many, if any, the underwriters of BAM.PR.N still have to unload. Certain the blow-out sale on EPP.PR.A I was told about has fizzled – the issue immediately started trading below the price I was told and has remained there since.
| 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 | 4.76% | 4.79% | 29,027 | 15.94 | 1 | +0.7842% | 1,044.6 |
| Fixed-Floater | 4.98% | 5.00% | 128,065 | 14.18 | 8 | -0.1729% | 1,022.0 |
| Floater | 4.87% | 0.32% | 72,172 | 8.22 | 4 | +0.9444% | 1,050.7 |
| Op. Retract | 4.83% | 4.07% | 81,890 | 3.43 | 16 | -0.0089% | 1,022.9 |
| Split-Share | 5.04% | 4.58% | 103,213 | 3.91 | 15 | -0.0171% | 1,046.9 |
| Interest Bearing | 6.20% | 6.58% | 62,625 | 4.65 | 3 | +0.7230% | 1,039.9 |
| Perpetual-Premium | 5.52% | 5.20% | 102,727 | 5.65 | 24 | +0.0182% | 1,024.7 |
| Perpetual-Discount | 5.07% | 5.11% | 308,888 | 15.32 | 39 | +0.1314% | 977.3 |
| Major Price Changes | |||
| Issue | Index | Change | Notes |
| BCE.PR.Z | FixFloat | -1.0305% | |
| BNS.PR.M | PerpetualDiscount | +1.0545% | Now with a pre-tax bid-YTW of 4.92% based on a bid of 23.00 and a limitMaturity. |
| BAM.PR.B | Floater | +1.1438% | Pays 70% of Canadian Prime; currently redeemable at $25.00; now bid at 24.76. |
| BAM.PR.M | PerpetualDiscount | +1.1933% | Now with a pre-tax bid-YTW of 5.68% based on a bid of 21.20 and a limitMaturity. The virtually identical BAM.PR.N issue is bid at 20.62 for a pre-tax bid-YTW of 5.84, and its redemption period starts six months later. |
| BSD.PR.A | InterestBearing | +1.6129% | Now with a pre-tax bid-YTW of 7.15% (as interest) based on a bid of 9.45 and a hardMaturity 2015-3-31 at 10.00 |
| BAM.PR.K | Floater | +2.6217% | Pays 70% of Canada Prime, currently redeemable at 25.00, now bid at 24.66 |
| Volume Highlights | |||
| Issue | Index | Volume | Notes |
| BNS.PR.M | PerpetualDiscount | 94,840 | National Bank crossed 70,000 at 23.00. Also a big price-mover – see above. |
| RY.PR.G | PerpetualDiscount | 56,060 | Now with a pre-tax bid-YTW of 4.98% based on a bid of 22.65 and a limitMaturity. |
| CM.PR.I | PerpetualDiscount | 31,230 | Now with a pre-tax bid-YTW of 5.10% based on a bid of 23.19 and a limitMaturity. |
| BNS.PR.L | PerpetualDiscount | 17,360 | Now with a pre-tax bid-YTW of 4.93% based on a bid of 22.95 and a limitMaturity. |
| BAM.PR.M | PerpetualDiscount | 15,060 | Also a big price-mover – see above. |
There were sixteen other $25-equivalent index-included issues trading over 10,000 shares today.