Towers Perrin has released its December 2010 Pension Finance Watch:
Strong equity returns dominated pension financial results in December, as the Towers Watson Pension Index moved up 3.5% to 70.7. The index was still down 1.3% for the full year, however, as positive equity returns were more than offset by the growth in liabilities resulting from falling interest rates.
They also released a report on Treasury Infl ation-Protected Securities (TIPS): A primer on infl ation-linked bonds and their relative value as an inflation hedge:
Inflation derivatives are another option when constructing an infl ation hedge. Recent academic research has shown that TIPS have historically been underpriced relative to a synthetic TIPS portfolio of nominal Treasuries and inflation swaps.** Beyond costs, these are also very complex markets with different risks and liquidity features than the cash/physical market. While there are some managers who are capable of handling such a mandate, because of cost, liquidity and counterparty risk, inflation derivatives are likely to be most suitable for clients
who have an explicit infl ation-linked liability they want to immunize in a highly customized manner.** Why Does The Treasury Issue TIPS? The TIPS–Treasury Bond Puzzle, Matthias Fleckenstein, Francis A. Longstaff, Hanno Lustig September 2010
BIS has released its Core Principles for Effective Deposit Insurance Systems.
The Federal Crisis Inquiry Commission has released the Financial Crisis Inquiry Report. It’s all the Fed’s fault:
Yet there was pervasive permissiveness; little meaningful action was taken to quell the threats in a timely manner.
The prime example is the Federal Reserve’s pivotal failure to stem the flow of toxic mortgages, which it could have done by setting prudent mortgage-lending standards. The Federal Reserve was the one entity empowered to do so and it did not. The record of our examination is replete with evidence of other failures: financial institutions made, bought, and sold mortgage securities they never examined, did not care to examine, or knew to be defective; firms depended on tens of billions of dollars of borrowing that had to be renewed each and every night, secured by subprime mortgage securities; and major firms and investors blindly relied on credit rating agencies as their arbiters of risk. What else could one expect on a highway where there were neither speed limits nor neatly painted lines?
Jonathan Ratner of the Financial Post reports an interesting fact in Canadian investment-grade bond market shines:
The total return of 6.92% was primarily a result of an average shift of 55 basis points in the yield curve. That was the biggest curve shift of any broad investment-grade index tracked by Bank of America Merrill Lynch, although the United States (-48 bps), Europe (-48 bps) and U.K. (-43 bps) were close behind.
The Canadian market also had fairly long duration on its side in 2010, BofAML analyst Preston Peacock said in a note to clients. At 6.78 years, the Canadian Broad Market Index is about two years longer than the United States and roughly 1.5 years longer than the Euro market. Only the Sterling market at 8.49 years has a longer duration than Canada and was the only outperformer with a 7.95% return in 2010.
…
While all sectors of the Canada Corporate Index saw healthy excess returns in 2010, banking (+0.81%) and insurance (+0.88%) had the lowest relative performances. Together, the account for about half the index.The banking sector, which has a weighting of roughly 40% in the index, didn’t exactly have a bad showing, so its hard to say it dragged down overall index performance. However, the group did lag the 1.31% return of the global bank sector.
Mr. Peacock explained this is due to the 46% allocation to subordinated debt in the Canadian Dollar Bank Index compared to 32% globally. The Canadian group did not sell off as much as its global peers previously and therefore saw less of a bounce-back.
Sub-debt as currently constituted is a bond, since holders can petition into bankruptcy – they will not be bonds under the new regime.
It was a positive day on the Canadian preferred share market amidst continued heavy volume as PerpetualDiscounts gained 9bp and FixedResets were up 7bp.
| 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 | 0.1682 % | 2,377.4 |
| FixedFloater | 4.79 % | 3.49 % | 27,132 | 19.14 | 1 | -1.0893 % | 3,553.1 |
| Floater | 2.52 % | 2.29 % | 41,104 | 21.54 | 4 | 0.1682 % | 2,566.9 |
| OpRet | 4.83 % | 3.42 % | 66,438 | 2.27 | 8 | -0.4334 % | 2,380.6 |
| SplitShare | 5.28 % | 0.61 % | 400,762 | 0.86 | 4 | 0.1396 % | 2,475.3 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.4334 % | 2,176.9 |
| Perpetual-Premium | 5.64 % | 5.23 % | 141,077 | 5.29 | 20 | 0.0629 % | 2,031.8 |
| Perpetual-Discount | 5.32 % | 5.28 % | 257,317 | 14.94 | 57 | 0.0947 % | 2,080.7 |
| FixedReset | 5.25 % | 3.55 % | 284,676 | 3.03 | 52 | 0.0736 % | 2,271.1 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| BAM.PR.J | OpRet | -3.93 % | Looks like a bogus quote, 25.65-26.69, 1×2, is to blame, with 3,380 shares trading in a range of 26.44-75. The quote given is the “Last”; I attempted to determine the “Close”, but the TMX DataLinx Trades and Quotes functionality was working with its customary efficiency, i.e., not. YTW SCENARIO Maturity Type : Soft Maturity Maturity Date : 2018-03-30 Maturity Price : 25.00 Evaluated at bid price : 25.65 Bid-YTW : 5.06 % |
| BAM.PR.G | FixedFloater | -1.09 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2041-01-27 Maturity Price : 25.00 Evaluated at bid price : 22.70 Bid-YTW : 3.49 % |
| BAM.PR.R | FixedReset | 1.05 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2016-07-30 Maturity Price : 25.00 Evaluated at bid price : 25.97 Bid-YTW : 4.69 % |
| BMO.PR.P | FixedReset | 1.54 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2015-03-27 Maturity Price : 25.00 Evaluated at bid price : 27.25 Bid-YTW : 2.97 % |
| CM.PR.K | FixedReset | 2.09 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2014-08-30 Maturity Price : 25.00 Evaluated at bid price : 26.85 Bid-YTW : 3.12 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| TRP.PR.B | FixedReset | 107,500 | Nesbitt crossed 100,000 at 25.05. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2041-01-27 Maturity Price : 25.01 Evaluated at bid price : 25.06 Bid-YTW : 3.91 % |
| SLF.PR.B | Perpetual-Discount | 64,568 | TD crossed 40,000 at 23.00. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2041-01-27 Maturity Price : 22.80 Evaluated at bid price : 23.01 Bid-YTW : 5.26 % |
| RY.PR.L | FixedReset | 50,110 | Nesbitt crossed 23,900 at 26.25. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-03-26 Maturity Price : 25.00 Evaluated at bid price : 26.27 Bid-YTW : 3.74 % |
| BAM.PR.P | FixedReset | 44,612 | National crossed 34,000 at 27.20. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-10-30 Maturity Price : 25.00 Evaluated at bid price : 27.30 Bid-YTW : 4.50 % |
| CM.PR.I | Perpetual-Discount | 40,925 | TD crossed 10,000 at 23.31. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2041-01-27 Maturity Price : 23.09 Evaluated at bid price : 23.29 Bid-YTW : 5.06 % |
| BAM.PR.N | Perpetual-Discount | 39,439 | National bought 10,000 from Nesbitt at 20.90. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2041-01-27 Maturity Price : 20.81 Evaluated at bid price : 20.81 Bid-YTW : 5.78 % |
| There were 51 other index-included issues trading in excess of 10,000 shares. | |||