The market is anticipating European sovereign default:
Yields on government securities from Greece, Ireland and Portugal reached records amid speculation the heavily indebted nations won’t be able to avoid restructuring.
Ireland’s two-year yield reached a euro-era record 12.08 percent after the European Union said the nation’s debt burden surged the most in the currency area last year. Greek two-year yields have climbed almost 870 basis points this month, reaching 24.45 percent today as investors priced in losses, or so-called haircuts, they may incur in the event of a restructuring.
…
Portugal’s two-year note yields touched a euro-era record of 11.74 percent, up from 8.78 percent at the end of last month. The 10-year yield reached a record 9.61 percent today, compared with 8.41 percent on March 31.
Greece’s deficit was bigger than expected:
Greece’s chances of avoiding a debt-crunching exercise faded to almost nothing with the revelation that its budget deficit is going in the wrong direction in spite of robust efforts to reduce government spending.
The country’s budget deficit in 2010 was 10.5 per cent of gross domestic product, Eurostat, the European Union’s statistics agency, reported on Tuesday. The figure was considerably bigger than Greek government’s own deficit target of 9.4 per cent and the European Commission’s estimate of 9.6 per cent.
DBRS confirmed BAM, but was careful to include some warnings:
Overall, DBRS still remains concerned with Brookfield’s aggressive expansion program and the possible impact it may have on its overall risk profile. Brookfield’s investments normally include real, low risk assets that generate steady cash flow. If there was a shift towards more speculative investments intended for shorter hold periods, the ratings could come under pressure. DBRS notes that the financial packaging of Brookfield’s investments within its portfolio can be complex. The transparency for this and intercompany transactions can be a challenge at times.
DBRS notes that while Brookfield’s corporate liquidity and cash flow has been reasonable, it is not sufficient to be a primary funding source for large new investments. In fact, the current size of corporate debt and preferred shares is approaching the limits for the current rating category. Thus far, concerns that sizable transactions could negatively affect the Company’s credit ratings have been mitigated with the used of co-investor capital and non-recourse debt. Even so, DBRS notes that the non-recourse debt at the operating levels is significant and that it has first claim on the related cash flows. It also presents some group refinancing risk.
Japan has joined S&P’s list of sovereigns with a negative outlook.
Apparently Obesity is expected to surpass smoking as the leading cause of preventable morbidity and mortality. I can’t wait for the time when the do-gooders have had their way with this one! Outside every office tower and public place will be a long line of fatties scarfing down their french fries and pizza!
It was a mixed day on the Canadian preferred share market, with PerpetualDiscounts off 2bp, FixedResets losing 11bp and DeemedRetractibles up 5bp. Not much volatility. Volume was average.
| 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 | 0.0832 % | 2,416.1 |
| FixedFloater | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.0832 % | 3,633.8 |
| Floater | 2.49 % | 2.26 % | 35,244 | 21.63 | 4 | 0.0832 % | 2,608.8 |
| OpRet | 4.92 % | 3.24 % | 57,112 | 2.05 | 8 | 0.0048 % | 2,411.4 |
| SplitShare | 5.20 % | -1.29 % | 84,359 | 0.63 | 6 | 0.0866 % | 2,496.9 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.0048 % | 2,205.0 |
| Perpetual-Premium | 5.80 % | 5.70 % | 116,474 | 6.12 | 8 | -0.0348 % | 2,049.8 |
| Perpetual-Discount | 5.58 % | 5.56 % | 133,237 | 14.39 | 16 | -0.0173 % | 2,121.0 |
| FixedReset | 5.18 % | 3.51 % | 204,830 | 2.91 | 57 | -0.1110 % | 2,290.0 |
| Deemed-Retractible | 5.28 % | 5.22 % | 295,180 | 8.11 | 53 | 0.0529 % | 2,075.2 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| IAG.PR.A | Deemed-Retractible | -1.52 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.38 Bid-YTW : 6.58 % |
| SLF.PR.G | FixedReset | -1.14 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.26 Bid-YTW : 4.08 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| RY.PR.E | Deemed-Retractible | 281,290 | Desjardins crossed 128,700 at 23.38, then another 130,000 at the same price. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.41 Bid-YTW : 5.27 % |
| CM.PR.P | Deemed-Retractible | 86,330 | National Bank crossed 11,700 at 25.20; RBC crossed two blocks of 25,000 each and TD crossed 20,000, all at the same price. YTW SCENARIO Maturity Type : Call Maturity Date : 2012-11-28 Maturity Price : 25.00 Evaluated at bid price : 25.19 Bid-YTW : 4.98 % |
| CIU.PR.B | FixedReset | 85,250 | RBC crossed 10,000 at 27.65; then another 75,000 at 27.74. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-07-01 Maturity Price : 25.00 Evaluated at bid price : 27.66 Bid-YTW : 3.55 % |
| MFC.PR.D | FixedReset | 57,605 | RBC crossed 49,200 at 27.50. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-07-19 Maturity Price : 25.00 Evaluated at bid price : 27.49 Bid-YTW : 3.60 % |
| BAM.PR.B | Floater | 34,202 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2041-04-26 Maturity Price : 19.00 Evaluated at bid price : 19.00 Bid-YTW : 2.78 % |
| BNS.PR.L | Deemed-Retractible | 33,004 | TD crossed 20,000 at 23.90. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.90 Bid-YTW : 5.06 % |
| There were 34 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| BAM.PR.R | FixedReset | Quote: 25.65 – 26.34 Spot Rate : 0.6900 Average : 0.4409 YTW SCENARIO |
| ELF.PR.F | Deemed-Retractible | Quote: 22.52 – 22.96 Spot Rate : 0.4400 Average : 0.3443 YTW SCENARIO |
| MFC.PR.B | Deemed-Retractible | Quote: 21.16 – 21.43 Spot Rate : 0.2700 Average : 0.1859 YTW SCENARIO |
| CU.PR.A | Perpetual-Premium | Quote: 25.16 – 25.34 Spot Rate : 0.1800 Average : 0.1123 YTW SCENARIO |
| TD.PR.Q | Deemed-Retractible | Quote: 25.65 – 25.85 Spot Rate : 0.2000 Average : 0.1400 YTW SCENARIO |
| BAM.PR.H | OpRet | Quote: 25.28 – 25.54 Spot Rate : 0.2600 Average : 0.2009 YTW SCENARIO |