I may have mentioned this before, but there are negative credit spreads in Europe:
The spread does, nevertheless, tell a story about relative risk. In Greece, Ireland, and Portugal, a number of sectors have negative corporate spreads, suggesting that firms are either less likely to default than their governments or will have higher recovery rates if they do default. The sector that stands apart as being much riskier than the government is financials. If these governments partially default, the guarantees they have made to the banking system are no longer credible, and the credit losses may be severe.
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There’s some commentary from Felix Salmon and Bloomberg:
An index of credit-default swaps on 15 European governments now exceeds a gauge of investment-grade credit risk by about 50 basis points, according to data from CMA and JPMorgan Chase & Co. Corporate swaps are historically more expensive than sovereign contracts.
The gap between the indexes “highlights the difference between how fundamentally strong non-financial corporate credit is versus how weak governments are,” said Aziz Sunderji, a credit strategist at Barclays Capital in London. “Corporate balance sheets look strong, cash liquidity buffers are large, and earnings have surprised to the upside. Most of the problems are originating from the sovereign side.”
Berkshire Hathaway was touted last spring as having traded through Treasuries, but the data are suspect.
For those who are interested, the relevant CDS indices are the Markit iTraxx SovX Western Europe index and the Markit iTraxx Europe index. Today’s marks are 165bp and 102bp, respectively.
Ireland said it may ask for an international bailout as European Central Bank President Jean- Claude Trichet signaled debt-laden nations can’t rely on him to keep their financial systems afloat forever.
Finance Minister Brian Lenihan said in Dublin he would welcome the creation of “substantial contingency capital funding” for Irish banks. In Frankfurt, Trichet said in a speech that policies first used to fight the global credit crisis can’t “evolve into a dependency as conditions normalize.”
The ECB is concerned that banks in Ireland and Greece are becoming too reliant on its unlimited money market operations and is pushing Ireland to accept a rescued funded by European Union governments and the International Monetary Fund. Irish central bank Governor Patrick Honohan said today that an agreement may amount to “tens of billions” of euros.
I’m not sure what exactly is meant by “contingency capital funding”.
Enbridge Gas Distribution, a wholly owned subsidiary of Enbridge Inc., has issued 40-year MTNs at 4.95%.
The Canadian preferred share market bounced back today on continued high volume, with PerpetualDiscounts up 18bp and FixedResets gaining 4bp.
| HIMIPref™ Preferred Indices These values reflect the December 2008 revision of the HIMIPref™ Indices Values are provisional and are finalized monthly |
|||||||
| Index | Mean Current Yield (at bid) |
Median YTW |
Median Average Trading Value |
Median Mod Dur (YTW) |
Issues | Day’s Perf. | Index Value |
| Ratchet | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.3297 % | 2,243.1 |
| FixedFloater | 4.88 % | 3.50 % | 26,918 | 19.13 | 1 | 0.0000 % | 3,449.2 |
| Floater | 2.65 % | 2.34 % | 62,480 | 21.39 | 4 | 0.3297 % | 2,422.0 |
| OpRet | 4.75 % | 2.92 % | 60,850 | 2.44 | 8 | -0.0333 % | 2,395.2 |
| SplitShare | 5.38 % | -1.12 % | 121,012 | 1.06 | 3 | 0.1896 % | 2,500.0 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.0333 % | 2,190.2 |
| Perpetual-Premium | 5.66 % | 5.28 % | 167,997 | 4.00 | 24 | 0.1459 % | 2,017.3 |
| Perpetual-Discount | 5.35 % | 5.42 % | 257,999 | 14.76 | 53 | 0.1761 % | 2,039.5 |
| FixedReset | 5.22 % | 3.02 % | 344,363 | 3.18 | 50 | 0.0376 % | 2,283.6 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| POW.PR.B | Perpetual-Discount | -1.33 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-11-18 Maturity Price : 23.56 Evaluated at bid price : 23.83 Bid-YTW : 5.67 % |
| FTS.PR.G | FixedReset | 1.04 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2013-10-01 Maturity Price : 25.00 Evaluated at bid price : 26.27 Bid-YTW : 3.25 % |
| BAM.PR.B | Floater | 1.11 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-11-18 Maturity Price : 17.30 Evaluated at bid price : 17.30 Bid-YTW : 3.06 % |
| SLF.PR.A | Perpetual-Discount | 1.32 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-11-18 Maturity Price : 21.87 Evaluated at bid price : 22.21 Bid-YTW : 5.41 % |
| RY.PR.H | Perpetual-Premium | 1.74 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2017-06-23 Maturity Price : 25.00 Evaluated at bid price : 25.69 Bid-YTW : 5.17 % |
| FTS.PR.F | Perpetual-Discount | 2.38 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-11-18 Maturity Price : 23.43 Evaluated at bid price : 23.65 Bid-YTW : 5.19 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| TD.PR.M | OpRet | 203,000 | Nesbitt bought 12,100 from anonymous as 25.86. RBC crossed three blocks, of 10,000 shares, 79,400 and 80,000, all at 25.86. YTW SCENARIO Maturity Type : Call Maturity Date : 2011-05-30 Maturity Price : 25.50 Evaluated at bid price : 25.85 Bid-YTW : 2.44 % |
| RY.PR.F | Perpetual-Discount | 56,647 | Nesbitt crossed 50,000 at 22.15. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-11-18 Maturity Price : 22.13 Evaluated at bid price : 22.26 Bid-YTW : 5.01 % |
| BNS.PR.M | Perpetual-Discount | 47,998 | Nesbitt crossed 29,000 at 22.41. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-11-18 Maturity Price : 22.23 Evaluated at bid price : 22.36 Bid-YTW : 5.07 % |
| PWF.PR.P | FixedReset | 43,525 | RBC crossed 30,000 at 26.00. YTW SCENARIO Maturity Type : Call Maturity Date : 2016-03-01 Maturity Price : 25.00 Evaluated at bid price : 26.07 Bid-YTW : 3.54 % |
| BNS.PR.N | Perpetual-Discount | 38,090 | Nesbitt crossed 30,000 at 24.93. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-11-18 Maturity Price : 24.59 Evaluated at bid price : 24.82 Bid-YTW : 5.33 % |
| BNS.PR.L | Perpetual-Discount | 36,478 | Desjardins crossed 25,000 at 22.41. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-11-18 Maturity Price : 22.22 Evaluated at bid price : 22.36 Bid-YTW : 5.07 % |
| There were 50 other index-included issues trading in excess of 10,000 shares. | |||