The Financial Crisis Inquiry Commission kicks off its hearings on credit ratings today, including testimony from Raymond W. McDaniel, Chairman and Chief Executive Officer, Moody’s Corporation:
- Credit Rating Agencies are commenters, not gatekeepers
- Credit Ratings are not investment advice
- Rating analysts do not structure or underwrite securities
- Investors should not rely on rely on ratings to buy, sell or hold securities (investors must do their own work – you cannot outsource responsibility)
- Every business model has conflicts of interest that must be managed
- Concerns about rating shopping do not stem from the business model
Commission Chairman Angelidies, determined to display his prejudice, has been quoted:
In his opening remarks, Chairman Phil Angelides said, “To be blunt, the picture is not pretty.” He added that “Moody’s did very well. The investors who relied on Moody’s ratings did not do so well.”
Angelides characterized the ratings service as a “triple-A factory,” saying that it assigned the top grade to 42,625 residential mortgage-backed securities from 2000 to 2007.
“In 2006 alone, Moody’s gave 9,029 mortgage-backed securities a triple-A rating,” said Angelides, whose panel was created to investigate the causes of the financial crisis as Congress debates the most sweeping overhaul of banking regulations since the Great Depression. “To put that in perspective, Moody’s currently bestows its triple-A rating on just four American corporations.”
Another day of fine returns in the Canadian preferred share market. “They” should “raise interest rates” more often! PerpetualDiscounts were up 31bp, while FixedResets gained 4bp as volume continued at slightly elevated levels.
No details of block trades are given today – the usual data source has been 404ed and it appears that the Financial Post has not yet completed implementation of the new publication mechanism – either that, or I can’t figure out the easy-to-use intuitive interface!
PerpetualDiscounts now yield 6.23%, equivalent to 8.72% interest at the standard equivalency factor of 1.4x. Long corporates are now at about 5.65%, so the pre-tax interest-equivalent spread (also called the Seniority Spread) now stands at about 305bp, a 10bp tightening from the 315bp recorded at month end.
| HIMIPref™ Preferred Indices These values reflect the December 2008 revision of the HIMIPref™ Indices Values are provisional and are finalized monthly |
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| Index | Mean Current Yield (at bid) |
Median YTW |
Median Average Trading Value |
Median Mod Dur (YTW) |
Issues | Day’s Perf. | Index Value |
| Ratchet | 2.62 % | 2.77 % | 43,910 | 20.89 | 1 | 1.1765 % | 2,117.3 |
| FixedFloater | 5.24 % | 3.31 % | 30,220 | 19.94 | 1 | -0.4317 % | 3,055.4 |
| Floater | 2.41 % | 2.79 % | 96,134 | 20.20 | 3 | -0.0734 % | 2,239.6 |
| OpRet | 4.90 % | 3.84 % | 97,954 | 0.96 | 11 | 0.1279 % | 2,307.1 |
| SplitShare | 6.44 % | 5.88 % | 106,610 | 0.08 | 2 | -0.0888 % | 2,151.9 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.1279 % | 2,109.6 |
| Perpetual-Premium | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.3124 % | 1,833.8 |
| Perpetual-Discount | 6.18 % | 6.23 % | 207,937 | 13.56 | 77 | 0.3124 % | 1,735.9 |
| FixedReset | 5.47 % | 4.23 % | 430,364 | 3.53 | 45 | 0.0404 % | 2,158.9 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| ENB.PR.A | Perpetual-Discount | -1.98 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-06-02 Maturity Price : 23.01 Evaluated at bid price : 23.28 Bid-YTW : 5.94 % |
| BAM.PR.E | Ratchet | 1.18 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-06-02 Maturity Price : 22.87 Evaluated at bid price : 21.50 Bid-YTW : 2.77 % |
| CIU.PR.A | Perpetual-Discount | 1.20 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-06-02 Maturity Price : 19.35 Evaluated at bid price : 19.35 Bid-YTW : 5.99 % |
| GWO.PR.F | Perpetual-Discount | 1.22 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-06-02 Maturity Price : 23.02 Evaluated at bid price : 23.30 Bid-YTW : 6.33 % |
| PWF.PR.G | Perpetual-Discount | 1.26 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-06-02 Maturity Price : 23.14 Evaluated at bid price : 23.39 Bid-YTW : 6.39 % |
| PWF.PR.H | Perpetual-Discount | 1.33 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-06-02 Maturity Price : 22.53 Evaluated at bid price : 22.80 Bid-YTW : 6.38 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| RY.PR.X | FixedReset | 313,475 | YTW SCENARIO Maturity Type : Call Maturity Date : 2014-09-23 Maturity Price : 25.00 Evaluated at bid price : 27.00 Bid-YTW : 4.31 % |
| IGM.PR.B | Perpetual-Discount | 95,285 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-06-02 Maturity Price : 22.83 Evaluated at bid price : 22.96 Bid-YTW : 6.51 % |
| CM.PR.J | Perpetual-Discount | 33,126 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-06-02 Maturity Price : 18.30 Evaluated at bid price : 18.30 Bid-YTW : 6.24 % |
| POW.PR.D | Perpetual-Discount | 30,100 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-06-02 Maturity Price : 20.02 Evaluated at bid price : 20.02 Bid-YTW : 6.35 % |
| CM.PR.H | Perpetual-Discount | 27,345 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-06-02 Maturity Price : 19.43 Evaluated at bid price : 19.43 Bid-YTW : 6.27 % |
| CM.PR.I | Perpetual-Discount | 26,900 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-06-02 Maturity Price : 19.15 Evaluated at bid price : 19.15 Bid-YTW : 6.22 % |
| There were 32 other index-included issues trading in excess of 10,000 shares. | |||