Well – a short week, but not entirely devoid of interest!
Today’s big news was that the US Jobs number was negative, which hasn’t happened in a while. Politicians reacted according to their stripe; economists hastily revised downwards their expectations for both growth and rates. Greenspan sounds very happy it’s not his problem. There is general agreement chances of a recession have increased.
I’ve previously mentioned Deutsche Bank’s success at Credit Anticipation in betting against sub-prime. Another winner emerged today:
The $4.5 billion Credit Opportunities fund, started last year, gained 26.7 percent in August, according to a Paulson investor. Credit Opportunities II, a newer $2.3 billion fund, is up more than threefold after a 32 percent return last month.
I feel quite sure that a lot of these massive losses we’re reading about are just hedge funds transferring money back and forth … when you share 20% of winnings and 0% of losses, why not bet the firm?
The Canadian bank-operated ABCP market is having major problems. Three-month BAs are yielding about 5% … ABCP is yielding about about 5.60% … when three-month bills are at 4.04%. That kind of spread is … well, let’s just say that banks are not having a nice time. Mind you, it’s even worse in the States, with bills at 4.07% and financial paper at 5.48% (US ABCP at 6.18%). While we’re on the topic of ABCP, the outstandings in America continue to shrivel, which indicates a ferocious combination of deleveraging and transfer to bank lines. The ‘transfer to bank lines’ part is dangerous – there is some concern regarding the banks’ committments and whether regulators need to step in. I don’t know, frankly, if line committments are added in any way to risk-adjusted capital. They should be! Especially since laying off risk is, to an extent, boomeranging.
Countrywide Credit is having a mass layoff, trying to survive in environment where it’s difficult, to say the least, to securitize mortgages that it originates. Citigroup is reportedly refusing to accept new mortgage clients. But maybe they’re just providing bigger lines to fewer clients.
Centex Corp., a Dallas-based homebuilder and lender, said in a regulatory filing today it replaced a warehouse credit line with a larger one arranged by JPMorgan Chase & Co. that may provide as much as $1 billion. Centex increased the credit line because the global credit crunch made it hard to rely on selling short-term notes to finance mortgages, the filing said.
US equities went splat on the jobs number. Recessions aren’t generally good for profits! Canadian equities also fell.
Treasuries had such a good day on the back of the jobs number it has to be referred to as panic-buying (possibly sending a lot of profit to foreign central banks, since boneheaded fiscal policies have sent a lot of money abroad). Why not, when Fed Fund Futures are predicting a rate of 4.5% by December? Well, perhaps because Fed officials are watching the economy, not markets. Canadas had a super day, with the ten-years’ yield declining about 13bp.
| 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 | 4.94% | 4.89% | 1,800,839 | 15.54 | 1 | +0.0000% | 1,043.7 |
| Fixed-Floater | 4.85% | 4.76% | 110,120 | 15.85 | 8 | +0.4523% | 1,032.1 |
| Floater | 4.43% | 3.06% | 89,111 | 10.77 | 4 | +0.4089% | 1,048.6 |
| Op. Retract | 4.83% | 3.91% | 76,509 | 3.03 | 15 | -0.0474% | 1,028.2 |
| Split-Share | 5.11% | 4.62% | 100,629 | 3.70 | 15 | +0.2704% | 1,050.6 |
| Interest Bearing | 6.31% | 6.90% | 65,636 | 4.55 | 3 | -0.3771% | 1,029.0 |
| Perpetual-Premium | 5.47% | 5.00% | 91,498 | 5.00 | 24 | +0.0058% | 1,032.7 |
| Perpetual-Discount | 5.06% | 5.10% | 262,025 | 15.06 | 38 | +0.0996% | 982.5 |
| Major Price Changes | |||
| Issue | Index | Change | Notes |
| MFC.PR.A | OpRet | -1.0828% | Now with a pre-tax bid-YTW of 3.77% based on a bid of 25.58 and a softMaturity 2015-12-18 at 25.00. That’s about 5.25% yield equivalent – bonds are a better bet than this. |
| LFE.PR.E | SplitShare | +1.0348% | Now with a pre-tax bid-YTW of 3.71% based on a bid of 10.74 and a hardMaturity 2012-12-1 at 10.00. Again – bonds look like a better idea at levels like this! |
| BCE.PR.T | FixFloat | +1.1066% | |
| RY.PR.E | PerpetualDiscount | +1.2849% | Now with a pre-tax bid-YTW of 4.95% based on a bid of 22.86 and a limitMaturity. |
| Volume Highlights | |||
| Issue | Index | Volume | Notes |
| GWO.PR.I | PerpetualDiscount | 353,675 | Nesbitt crossed 24,300 at 22.70. Now with a pre-tax bid-YTW of 4.96% based on a bid of 22.68 and a limitMaturity |
| PWF.PR.F | PerpetualPremium | 38,626 | National Bank crossed 35,000 at 24.95. Now with a pre-tax bid-YTW of 5.29% based on a bid of 25.05 and a limitMaturity. |
| SLF.PR.A | PerpetualDiscount | 32,950 | Now with a pre-tax bid-YTW of 4.99% based on a bid of 23.80 and a limitMaturity. |
| MFC.PR.C | PerpetualDiscount | 27,825 | Now with a pre-tax bid-YTW of 4.86% based on a bid of 23.20 and a limitMaturity. |
| POW.PR.A | PerpetualPremium | 27,550 | Scotia crossed 25,000 at 25.11. Now with a pre-tax bid-YTW of 5.67% based on a bid of 25.10 and a limitMaturity. |
There were ten other $25-equivalent index-included issues trading over 10,000 shares today.