November 26, 2010

Ireland’s causing more trouble:

Senior bonds of Allied Irish Banks Plc and Bank of Ireland Plc slumped today amid concern the government will force holders of such debt to share the cost of bailing out its financial system.

The need for speed in securing a deal for Ireland is growing amid an outflow of funds from its banks and as investors dump the bonds of other European governments on concern they too will be infected by the sovereign debt crisis. As officials from Portugal and Spain rejected speculation that their economies would also need saving, the average yield investors demand to hold 10-year debt from Greece, Ireland, Portugal, Spain and Italy today reached a euro-era record of 7.56 percent.

Aid negotiators from the EU and International Monetary Fund are taking legal advice on how senior bondholders can share the cost of the 85 billion-euro ($113 billion) bailout without triggering lawsuits, the Irish Times reported today, without saying where it got the information.

Allied Irish’s 750 million euros of 5.625 percent senior notes due 2014 plunged 4 cents on the euro to 73 cents, a 5.2 percent decline, according to composite prices on Bloomberg at 1:25 p.m. in London. Bank of Ireland’s 974 million euros of 4.625 percent senior unsecured notes maturing in 2013 fell 4 cents on the euro, or 4.8 percent, to 81 cents.

Two years ago, the Irish government assured senior bondholders that they wouldn’t lose their money if banks failed.

This is what happens when you throw out 300 years of bankruptcy law because it’s inconvenient. I don’t think the Irish banks have any chance at all of rolling that debt when it comes due.

And the PIIGS are getting slaughtered:

The average yield for 10-year debt from Greece, Ireland, Portugal, Spain and Italy reached 7.57 percent today, a euro- era record. The average premium investors demand to hold those securities instead of German bunds widened to as much as 492 basis points, the highest level of 2010. The average cost of insuring against default by the five nations using credit- default swaps reached a record 517 basis points on Nov. 23.

Hungary’s going a step further: confiscation of pension assets:

The government told Hungarians on Nov. 24 to move private- pension fund assets to government control or lose their state pension, an ultimatum designed to shift 3 trillion forint ($14.2 billion) of privately managed pension assets.

While the extra funds will move Hungary’s budget into surplus next year and may drive down government bond yields, the measure will undermine peoples’ ability to manage their savings, said Sandor Vizkeleti, chief executive of Budapest-based Pioneer Alapkezelo, a unit of UniCredit SpA.

Hungary, the first European Union country to obtain an International Monetary Fund-led bailout during the credit crisis in 2008, is following the example of Argentina, which in 2001 seized retirement savings by forcing private pension funds to transfer money to a state bank in exchange for Treasury bills.

The government in Buenos Aires nationalized the $24 billion industry two years ago to compensate for falling tax revenue after a 2005 debt restructuring. In Hungary, private fund members have the option of staying outside the state retirement system at the cost of giving up 70 percent of their contributions and the right to a state pension.

Some interesting developments with US pension funding:

United Parcel Service Inc., the world’s largest package- delivery business, Dow Chemical Co., Northrop Grumman Corp. and PPG Industries Inc. sold at least $5.25 billion of investment- grade U.S. corporate bonds in November to fund their pensions, making it the busiest month since June 2003, according to data compiled by Bloomberg.

The Federal Reserve’s effort to hold down interest rates to stimulate the economy has caused corporate pension obligations, which are pegged to bond yields, to rise by $105.8 billion this year to $1.44 trillion as of October, according to Milliman Inc.

Cyborg Trading was featured in a nice piece in the Globe yesterday:

Cyborg, a startup three years ago that today employs 14 math PhDs in its two Canadian offices, is helping day traders build and run their own trading algorithm. “You still have to come up with your own model, but that’s just one part of the equation,” Mr. Bittrolff says. “After that, it becomes, how do you execute it?”

Cyborg helps customers turn their algorithm into a simple trading strategy, and then incorporate that into their own online trading platform. “Our tool lets the trader manage and monitor his own algo,” Mr. Bittrolff adds. “No one wants these things to run amok.”

This was probably inspired by a piece in Business London Magazine, which I haven’t read because the software used to publish it on-line is such a total piece of shit.

One of their “recent developments” is a rather crude tool to monitor trading depth:

Cyborg Trader™ now offers traders the ability to cancel bids or offers based on the number of shares that are present at the top of book. Cyborg Trader™’s depth threshold technology monitors the size posted on the bid or offer of a price level. If the number of shares posted at a given price reduces by a specified amount (or percentage) the order is cancelled. This gives traders the opportunity to be filled on the bid/offer while they are close to the front of the queue without having stocks trade through their price level.

Yesterday’s Globe had an article titled This 7-per-cent yield comes with questions, about Quadravest’s new Dividend Select 15:

Dividend Select 15 uses an established options strategy called covered call writing to generate the additional five percentage points of return necessary to make those payments of 5.83 cents a month and cover fees.. Covered call writing limits your upside gains on a stock, but it also offers the potential to outperform in a slightly rising, flat or falling market. It works best in volatile markets.

Is it feasible to expect Dividend Select 15 to consistently generate the extra returns needed to make its targeted level of cash payouts? For an answer, [president and CEO of Weigh House Investor Services] Mr. [Warren] MacKenzie consulted an outside money management firm with some expertise in dividend investing.

“They said you can’t do that,” Mr. MacKenzie said. “There’s no way to consistently generate [the extra] 5 per cent.”

This points to a familiar theme in my complaints about regulation: Quadravest has been touting covered call writing in just about every single one of its products. yet in their prospectus they are not compelled to talk about their success in implementing the technique … all they have to disclose is their years of experience.

Assiduous Reader BF points out that Garth Turner continues to promote preferred shares as a panacea. His one-size-fits-all views are discussed on FWF – and probably elsewhere. Mr. Turner does not publish his performance track record. Update: He is a stockbroker with Turner Tomenson & Associates Family Wealth Management of Wellington West Capital Inc.

The Canadian preferred share market eased downwards on average volume today, with PerpetualDiscounts down 6bp and FixedResets losing 5bp.

HIMIPref™ Preferred Indices
These values reflect the December 2008 revision of the HIMIPref™ Indices

Values are provisional and are finalized monthly
Index Mean
(at bid)
Mod Dur
Issues Day’s Perf. Index Value
Ratchet 0.00 % 0.00 % 0 0.00 0 0.4271 % 2,266.7
FixedFloater 4.79 % 3.43 % 27,166 19.18 1 0.8889 % 3,511.1
Floater 2.63 % 2.35 % 53,587 21.38 4 0.4271 % 2,447.4
OpRet 4.75 % 2.83 % 60,030 2.41 8 0.1000 % 2,395.6
SplitShare 5.43 % 0.23 % 115,866 1.03 3 -0.1260 % 2,480.4
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.1000 % 2,190.6
Perpetual-Premium 5.67 % 5.37 % 157,524 5.41 24 -0.0706 % 2,013.1
Perpetual-Discount 5.34 % 5.36 % 276,009 14.90 53 -0.0571 % 2,045.4
FixedReset 5.22 % 3.23 % 346,558 3.16 51 -0.0474 % 2,277.0
Performance Highlights
Issue Index Change Notes
PWF.PR.I Perpetual-Premium -1.22 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2012-05-30
Maturity Price : 25.00
Evaluated at bid price : 25.15
Bid-YTW : 5.92 %
PWF.PR.F Perpetual-Discount -1.13 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-11-26
Maturity Price : 23.41
Evaluated at bid price : 23.70
Bid-YTW : 5.59 %
GWO.PR.H Perpetual-Discount -1.02 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-11-26
Maturity Price : 23.03
Evaluated at bid price : 23.25
Bid-YTW : 5.29 %
MFC.PR.D FixedReset 1.14 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-07-19
Maturity Price : 25.00
Evaluated at bid price : 27.52
Bid-YTW : 3.55 %
HSB.PR.C Perpetual-Discount 1.43 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-11-26
Maturity Price : 23.78
Evaluated at bid price : 24.05
Bid-YTW : 5.38 %
Volume Highlights
Issue Index Shares
GWO.PR.I Perpetual-Discount 118,860 Nesbitt crossed 110,800 at 21.45.
Maturity Type : Limit Maturity
Maturity Date : 2040-11-26
Maturity Price : 21.43
Evaluated at bid price : 21.43
Bid-YTW : 5.34 %
TD.PR.Q Perpetual-Premium 98,100 Nesbitt crossed 80,000 at 25.55.
Maturity Type : Call
Maturity Date : 2017-03-02
Maturity Price : 25.00
Evaluated at bid price : 25.56
Bid-YTW : 5.28 %
RY.PR.F Perpetual-Discount 56,430 Nesbitt crossed 50,000 at 22.50.
Maturity Type : Limit Maturity
Maturity Date : 2040-11-26
Maturity Price : 22.34
Evaluated at bid price : 22.48
Bid-YTW : 4.97 %
BMO.PR.L Perpetual-Premium 56,408 Desjardins crossed three blocks, of 25,000 shares, 14,700 and 10,900, all at 26.15.
Maturity Type : Call
Maturity Date : 2017-06-24
Maturity Price : 25.00
Evaluated at bid price : 26.08
Bid-YTW : 5.06 %
CM.PR.L FixedReset 54,747 RBC crossed 45,600 at 27.98.
Maturity Type : Call
Maturity Date : 2014-05-30
Maturity Price : 25.00
Evaluated at bid price : 27.98
Bid-YTW : 3.07 %
BNS.PR.N Perpetual-Discount 43,270 RBC crossed 25,000 at 24.85.
Maturity Type : Limit Maturity
Maturity Date : 2040-11-26
Maturity Price : 24.60
Evaluated at bid price : 24.83
Bid-YTW : 5.34 %
There were 28 other index-included issues trading in excess of 10,000 shares.

One Response to “November 26, 2010”

  1. […] had a laugh at the 7% targetted distribution of Quadravest’s Dividend Select 15 on November 26. In the interest of fairness, I think we should all now laugh just as loudly at Mulvihill’s […]

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