The Bank of England has released a working paper by Iryna Kaminska, Andrew Meldrum and James Smith titled A global model of international yield curves: no-arbitrage term structure approach:
This paper extends a popular no-arbitrage affine term structure model to model jointly bond markets and exchange rates across the United Kingdom, United States and euro area. Using a monthly data set of forward rates from 1992, we first demonstrate that two global factors account for a significant proportion in the variation of bond yields across countries. We also show that, in order to explain country-specific movements in yield curves, local factors are required. Although we implement a very general factor structure, we find that our global factors are related to global inflation and global economic activity, while local factors are closely linked to monetary policy rates. In this respect our results are similar to previous work. But an important advantage of our joint international model is that we are able to decompose interest rates into risk-free rates and risk premia. Additionally, we are able to study the implications for exchange rates. We show that while differences in risk-free rates matter, to a large extent changes in the exchange rate are determined by time-varying exchange rate risk premia.
The Germans are laying the groundwork for a Greek default:
A Greek debt restructuring “would not be a disaster” and Germany would back a voluntary effort to ease the struggling euro member’s payment terms, Deputy Foreign Minister Werner Hoyer said. The euro and Greek bonds fell after his comments.
The remarks by Hoyer were the most explicit by a European official showing a 110 billion-euro ($159 billion) bailout for Greece may fail to prevent the first default by a euro country. His message contrasts with Greek Prime Minister George Papandreou’s pledge to avoid a restructuring.
…
Bonds of Europe’s most indebted nations fell for a third day after a Moody’s Investors Service downgrade of Ireland to the lowest investment grade and Hoyer’s comments. The yield on 10-year Greek debt jumped 55 basis points to 13.83 percent, widening the spread over German bunds to a record 1,045 basis points. The euro weakened 0.2 percent to $1.4454 at 12:10 p.m. in New York.
S&P has revised the trend on Sun Life Financial to “Stable” from “Negative”:
Sun Life’s 2010 after-tax operating earnings of C$1.58 billion–including C$301 million from the recovering U.S. insurance operations–met our expectations. In addition, earnings diversity and lower restrictions on dividends in Canada minimally support the continued narrowed notching between the holding-company and operating-company ratings. Consequently, we have revised the outlook on the holding company to stable from negative; the outlook on SLF’s North American subsidiaries remains stable. In addition, we have affirmed the ‘A’ rating on Sun Life Financial Inc. and the ‘AA-‘ ratings on its North American subsidiaries. On April 15, 2011, Standard&Poor’s Ratings Services revised its outlook on Sun Life Financial Inc. (SLF) to stable from negative.
Another depressing day for the Canadian preferred share market, with PerpetualDiscounts off 7bp, FixedResets down 1bp and DeemedRetractibles losing 11bp. Volatility continued to be minimal, with only one entry in the Performance Highlights table. Volume picked up, but not to any notable level.
| 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 | -0.0238 % | 2,408.6 |
| FixedFloater | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.0238 % | 3,622.5 |
| Floater | 2.50 % | 2.27 % | 39,122 | 21.55 | 4 | -0.0238 % | 2,600.7 |
| OpRet | 4.91 % | 3.10 % | 55,296 | 2.09 | 8 | 0.0000 % | 2,414.6 |
| SplitShare | 5.20 % | -1.52 % | 100,780 | 0.66 | 6 | -0.0530 % | 2,493.6 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.0000 % | 2,208.0 |
| Perpetual-Premium | 5.80 % | 5.69 % | 122,161 | 6.15 | 8 | -0.1143 % | 2,048.3 |
| Perpetual-Discount | 5.60 % | 5.66 % | 127,352 | 14.37 | 16 | -0.0681 % | 2,113.5 |
| FixedReset | 5.17 % | 3.47 % | 206,049 | 2.94 | 57 | -0.0106 % | 2,291.9 |
| Deemed-Retractible | 5.27 % | 5.26 % | 313,425 | 8.17 | 53 | -0.1077 % | 2,075.9 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| HSB.PR.C | Deemed-Retractible | -1.19 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.07 Bid-YTW : 5.62 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| HSE.PR.A | FixedReset | 166,040 | Recent new issue. YTW SCENARIO Maturity Type : Call Maturity Date : 2016-04-30 Maturity Price : 25.00 Evaluated at bid price : 25.62 Bid-YTW : 4.00 % |
| BMO.PR.Q | FixedReset | 92,302 | Nesbitt crossed 75,000 at 24.95. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.93 Bid-YTW : 4.00 % |
| BMO.PR.L | Deemed-Retractible | 76,487 | Nesbitt crossed blocks of 50,000 and 22,000, both at 26.10. YTW SCENARIO Maturity Type : Call Maturity Date : 2017-06-24 Maturity Price : 25.00 Evaluated at bid price : 26.10 Bid-YTW : 5.15 % |
| CM.PR.E | Deemed-Retractible | 73,205 | RBC crossed blocks of 30,000 and 36,800, both at 25.12. YTW SCENARIO Maturity Type : Call Maturity Date : 2012-11-30 Maturity Price : 25.00 Evaluated at bid price : 25.12 Bid-YTW : 5.17 % |
| GWO.PR.L | Deemed-Retractible | 63,649 | Nesbitt crossed 50,000 at 25.02. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.90 Bid-YTW : 5.77 % |
| MFC.PR.F | FixedReset | 63,024 | Nesbitt crossed 50,000 at 25.06. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.01 Bid-YTW : 4.25 % |
| There were 35 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| FTS.PR.F | Perpetual-Discount | Quote: 23.10 – 23.75 Spot Rate : 0.6500 Average : 0.5170 YTW SCENARIO |
| BAM.PR.X | FixedReset | Quote: 24.54 – 24.95 Spot Rate : 0.4100 Average : 0.2935 YTW SCENARIO |
| CM.PR.K | FixedReset | Quote: 26.25 – 26.57 Spot Rate : 0.3200 Average : 0.2262 YTW SCENARIO |
| MFC.PR.C | Deemed-Retractible | Quote: 20.98 – 21.29 Spot Rate : 0.3100 Average : 0.2183 YTW SCENARIO |
| PWF.PR.K | Perpetual-Discount | Quote: 22.54 – 22.79 Spot Rate : 0.2500 Average : 0.1588 YTW SCENARIO |
| RY.PR.L | FixedReset | Quote: 26.79 – 27.15 Spot Rate : 0.3600 Average : 0.2785 YTW SCENARIO |