A nervous day in the market today – best illustrated by the fall in US 3-month T-Bills to 3.09%, down 66bp on the day with a Treasury auction coming in at 2.85%.
A serious affront to analyst/portfolio manager independence was delivered by National Bank in the context of their purchase of Asset Backed Commercial Paper that was sold to certain client or held by National Bank branded money market funds:
As a result, our clients can be reassured that the funds will not hold any ABCP until we are convinced of the quality and liquidity of the paper, whether or not it is issued by a major bank.
…
National Bank of Canada, mindful of the best interests of the unitholders of the National Bank Mutual Funds, preferred not to have its clients bear the brunt of this uncertainty and therefore decided to initiate the transaction announced today.
Excuse me? National Bank decided? And ABCP won’t be held until “we” (under the National Bank letterhead) are happy about the credit quality?
I may be a little dense, but Morningstar lists the portfolio manager as Richard Levesque and he works for Natcan, which is registered by the OSC as “Investment Counsel/Portfolio Manager”. He is the only one entitled to make decisions regarding fund investments within the context of the fund’s mandate and the mandate is the sole province of the unitholders. National Bank, CEO Louis Vachon, and any miscellaneous bozos from marketting have no say in the matter.
As always, there’s no telling what the real story is (the press release may have been released in unseemly haste and poorly edited with an emphasis on brevity), but I trust that all unitholders, regulators and trade associations will do what they can to ensure they know just who is running the fund, whose interests are held paramount at all times and how much influence National Bank management has over portfolio management decisions.
Some readers will not consider this a major issue. Some readers are encouraged not to come running to me when the interests of mutual funds and their corporate sponsors become intertwined in a manner they don’t like.
In less important news, a lot of children are being thrown off sleds to the sub-prime wolves. Capital One is taking a big charge to close its Alt-A mortgage unit, KKR Financial is seeking equity after selling a big chunk of sub-primes, and Thornburg sold a whack of mortgage-backeds in a frantic attempt to delever. Solent Capital may be forced to join them, after investors wouldn’t buy their ABCP. In short, the market is working as it should, although fear continues to rule greed: money market funds are piling into those famous 3% Treasury Bills, and SachsenLB needed emergency liquidity of 17.3-billion Euros.
The blame game continues, with calls for more regulation in Europe and America. Blaming the Fed is always popular. I haven’t seen calls for more regulation in Canada yet, possibly because they’re still trying to find something that isn’t regulated.
The WSJ reminds us that all this has happened before. Brad Setser reports on current Fed thinking on how this will all resolve – which doesn’t appear to involve more regulation, thank heavens – while Jim Hamilton looks at low-investment-grade spreads and wonders where all the risk is being priced. My guess is simply that contagion from lower-quality sub-prime, while knocking hell out of higher-rated sub-prime and affecting investment-grade corporates to some degree … simply has run out of steam.
US Equities experienced a few swings, but closed up on the day, followed by their Canadian counterparts.
Treasury news was dominated by the plunge in short-end yields, while Canada continued steepening. I like steepening.
A quiet day for preferreds, although Nesbitt was able to accomplish some crossing in size. The perpetualPremium sector did well, led by BMO.PR.H and CL.PR.B.
| 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 | 4.77% | 4.82% | 23,889 | 15.91 | 1 | +0.2479% | 1,037.7 |
| Fixed-Floater | 5.00% | 4.89% | 115,887 | 15.75 | 8 | +0.0161% | 1,018.2 |
| Floater | 4.95% | 2.75% | 75,370 | 7.95 | 4 | +0.0307% | 1,033.0 |
| Op. Retract | 4.84% | 3.99% | 81,006 | 3.12 | 16 | +0.0397% | 1,022.3 |
| Split-Share | 5.11% | 5.04% | 99,591 | 4.21 | 15 | +0.1108% | 1,035.3 |
| Interest Bearing | 6.23% | 6.71% | 65,557 | 4.60 | 3 | +0.1715% | 1,036.0 |
| Perpetual-Premium | 5.55% | 5.23% | 98,522 | 7.31 | 24 | +0.1894% | 1,020.7 |
| Perpetual-Discount | 5.14% | 5.17% | 289,421 | 15.22 | 39 | +0.0467% | 967.0 |
| Major Price Changes | |||
| Issue | Index | Change | Notes |
| POW.PR.D | PerpetualDiscount | -2.9757% | Now with a pre-tax bid-YTW of 5.46% based on a bid of 23.15 and a limitMaturity. |
| BAM.PR.M | PerpetualDiscount | -1.4458% | Closed at 20.45-50, 2×22. The virtually identical BAM.PR.N closed at 19.70-89, 5×1. Now with a pre-tax bid-YTW of 5.91% based on a bid of 20.45 and a limitMaturity. |
| NA.PR.L | PerpetualDiscount | -1.1667% | Now with a pre-tax bid-YTW of 5.14% based on a bid of 23.72 and a limitMaturity. |
| RY.PR.G | PerpetualDiscount | +1.0806% | Now with a pre-tax bid-YTW of 5.03% based on a bid of 22.45 and a limitMaturity. |
| ELF.PR.G | PerpetualDiscount | +1.0909% | Now with a pre-tax bid-YTW of 5.40% based on a bid of 22.24 and a limitMaturity. |
| CL.PR.B | PerpetualPremium | +1.1628% | Now with a pre-tax bid-YTW of 4.95% based on a bid of 26.10 and a call 2008-1-30 at 25.75. |
| RY.PR.E | PerpetualDiscount | +1.1628% | Now with a pre-tax bid-YTW of 4.94% based on a bid of 22.87 and a limitMaturity. |
| BNA.PR.A | SplitShare | +1.1968% | Now with a pre-tax bid-YTW of 6.14% based on a bid of 25.03 and a hardMaturity 2010-9-30 at 25.00. |
| RY.PR.D | PerpetualDiscount | +1.2195% | Now with a pre-tax bid-YTW of 5.04% based on a bid of 22.41 and a limitMaturity. |
| LFE.PR.A | SplitShare | +1.4606% | Now with a pre-tax bid-YTW of 4.42% based on a bid of 10.42 and a hardMaturity 2012-12-01 at 10.00. |
| BMO.PR.H | PerpetualPremium | +1.7453% | Now with a pre-tax bid-YTW of 4.77% based on a bid of 25.65 and a call 2013-3-27 at 25.00. |
| Volume Highlights | |||
| Issue | Index | Volume | Notes |
| DW.PR.A | Scraps (Would be OpRet, but there are credit concerns) | 137,521 | ITG bought 10,000 from “Anonymous”. Now with a pre-tax bid-YTW of 7.12% based on a bid of 21.16 and a softMaturity 2017-3-12 at 25.00. |
| CM.PR.R | OpRet | 102,600 | Nesbitt crossed 100,000 at 25.70. Now with a pre-tax bid-YTW of 4.66% based on a bid of 25.59 and a softMaturity 2013-4-29 at 25.00. |
| GWO.PR.X | OpRet | 100,995 | Nesbitt crossed 100,000 at 26.85. Now with a pre-tax bid-YTW of 3.57% based on a bid of 26.75 and a call 2009-10-30 at 26.00 … not much of bet on the call being waived, as the softMaturity 2013-9-29 at 25.00 yields only 3.66%. Either way, the bonds look better to me! |
| BMO.PR.J | PerpetualDiscount | 57,470 | National Bank crossed 18,700 at 22.50, then another 23,600 at the same price. Now with a pre-tax bid-YTW of 5.04% based on a bid of 22.40 and a limitMaturity. |
| RY.PR.B | PerpetualDiscount | 55,830 | Now with a pre-tax bid-YTW of 5.06% based on a bid of 23.30 and a limitMaturity. |
| TD.PR.O | PerpetualDiscount | 18,521 | Now with a pre-tax bid-YTW of 4.98% based on a bid of 24.52 and a limitMaturity. |
There were ten other $25-equivalent index-included issues trading over 10,000 shares today.
[…] PrefBlog Canadian Preferred Shares – Data and Discussion « August 20, 2007 […]
[…] This topic arose during a lunch I had today with a PrefLetter subscriber (He bought! I wish to take this opportunity, firstly to thank him, and secondly to encourage subscribers and others to buy me lunch at every opportunity!). We were talking about Tier 1 Capital Ratios, and the National Bank’s purchase of ABCP, preferred shares and how all those things related. My friend made the comment that ABCP buyers – buying assets that were levered 10+:1 – got everything they deserved. But, as I have now confirmed, such leverage is normal! Royal Bank’s financials reveal $537-billion in assets supported by $22-billion in equity, a gearing of 24:1. […]