More trouble in Europe:
Standard & Poor’s said Saturday that country was in danger of having its debt rating lowered if it could not reduce its public borrowing and improve economic growth.
The ratings agency lowered its outlook for Italy’s debt to negative from stable. That means there is a one-in-three chance that S&P would downgrade Italy’s debt rating in the next two years.
Fitch and Moody’s, the other two main ratings agencies, have said they see no reason to alter their outlook for Italy’s debt. The S&P warning was enough to rattle European markets and cause investors to worry that Italy could be next on the list of countries affected by widespread European debt after Greece, Portugal and Ireland.
The Greeks might even get serious!
Greek Prime Minister George Papandreou’s Cabinet is set to endorse additional deficit cuts and asset sales, fending off speculation that the country is headed to a restructuring.
The cost to insure Greek debt against default rose to a record and the yield on its 10-year bonds increased to a euro- era high after Standard & Poor’s said May 20 it may cut Italy’s credit rating. That warning came hours after Fitch Ratings cut Greece three grades.
…
Greek 10-year yields jumped 19 basis points to 16.76 percent as of 9:23 a.m. in London while yields on two-year notes climbed 12 basis points to 25.58 percent. Italian 10-year yields rose six basis points to 4.84 percent.The cost of insuring government and corporate debt rose in Europe, according to traders of credit-default swaps. Contracts on Greece soared 29 basis points to a record 1,373, Ireland jumped 14 to 655 and Portugal rose 9 to 649, while Italy increased 14 to 174 and Spain climbed 13 to 275, prices from data provider CMA showed today.
In Athens, Papandreou is chairing a Cabinet meeting today to discuss his fifth austerity package since getting a 110 billion-euro rescue from the European Union and the International Monetary Fund.
The government is looking for ways to speed up plans to sell 50 billion euros of assets, the equivalent of almost 25 percent of gross domestic product. The meeting comes as a team of IMF and EU inspectors prepare to return to Athens this week to complete their review of Greece’s progress in meeting the bailout terms.
As it happens, asset sales will speed up:
The Greek government endorsed an accelerated asset-sale plan and 6 billion euros ($8.4 billion) of budget cuts to win extra aid and stem a market slide that threatens to swamp the most debt-laden euro-area nations.
Belgium had the outlook on its AA+ investment-grade credit rating lowered to negative at Fitch Ratings yesterday as the cost to insure Greek debt against default rose to a record and the yield on its 10-year bonds increased to a euro-era high.
…
Greek 10-year yields jumped 46 basis points to a record 17 percent, while yields on two-year notes climbed 79 basis points to 26.25 percent. Contracts on Greek default insurance soared 29 basis points to a record 1,373.“The bond market is the only language policy makers will listen to,” Axel Merk, chief investment officer for Merk Investments Llc said in an interview with Bloomberg Television’s Betty Liu. “Once the bond markets impose austerity on the country that’s when they follow through, when there is a backing off, when things are going better, that’s when they lapse.”
I’ll bid on the Elgin Marbles!
Whenever you deal with somebody who proudly sports a title containing the word “ethicist” or “advocate”, you know you’re going to hear a lot of arrogance and idiocy. For example, there was an article in Sunday’s Star titled DNA diviners: Valuable service or dangerous novelty?:
Knowledge of your carrier status is beneficial, says Kerry Bowman, a medical ethicist at the University of Toronto who specializes in genetic issues.
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But Bowman sees ethical problems with the disease susceptibility information, fearing it will be misunderstood or cause unnecessary fear.
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“It does raise ethical questions. . . if you’re giving people genetic information about things they cannot control,” he says.“I mean an increased prostate cancer (risk) or something, what can you do with that except stew?”
His fear that genetic information will be misunderstood or cause unnecessary fear is simply arrogant. Get back to your book-burning, Mr. Bowman. As for what people can do with increased prostate cancer risk … well, one thing you can do is take out increased insurance that covers prostate cancer. The adverse selection implied by idiotic restrictions on the information that insurance companies can use will be the death of the industry.
Rolet of the LSE is dissing the banks’ bid for the TMX:
We look at this first and foremost as an opportunity for Canada and a growth based deal, not the reconstitution of a very strong monopolistic silo. I think the Maple team has highlighted their preferred model — the Hong Kong Stock Exchange or Deutsche Borse model — which is based on a hermetically sealed clearing silo and no competition.
There are issues today in terms of competition if you merge with your competitor, if you integrate the clearinghouse — of course that’s where the growth is going to come from because by merging with the clearinghouse you’ve prevented any future competition from entering the market. Who’s going to pay for this? Perhaps not the founding members, certainly everyone else will.
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If [Alpha and CDS] are contributed as equity does the banks’ ownership go above 50% if you have to put in another couple of billion? The whole construct, which is based on pricing power resulting from the setting up of a monopoly, comes crashing down when you look at the issue of getting approval from the shareholders of Alpha and CDS and that has to be based on a pricing agreement that realizes substantial value for them.We don’t know anything about what the competition authorities are going to think in terms of this reconstitution of a monopolistic silo.
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I think this goes against — not just in France or Brussels or Germany or the U.K. or the U.S. — this goes against the general trend that regulators… do not want banks to own infrastructure, because infrastructure has to remain neutral.It’s definitely not the sense we get history is moving, both in the United States and in Europe. You need at the end a separation, you need neutrality, because it’s not just about banks. Big wholesale banks are very important customers, but so are small and mid-sized broker dealers. If you get price increases linked to the integration of a clearinghouse [like CDS Inc.] who is going to pay for those increases? Who is going to pay for the fee increases resulting from lessened competition at the trading level? Is it going to be the founding members of that particular Maple consortium, or is it going to be everybody else? It’s the small corporate issuers, the small broker dealers. If a platform is not neutral, it cannot function as a exchange should.
But there are problems with the LSE bid:
The value of the bourse’s offer to buy TMX Group Inc. (X) with equity fell 4.9 percent below the price of the Toronto stock exchange operator’s shares yesterday, according to data compiled by Bloomberg. The gap is the widest of any all-stock deal over $1 billion, indicating to arbitragers that LSE’s equity alone won’t be enough to fend off a higher bid from a group of Canadian banks and funds trying to keep TMX in local hands.
Fox News has enough about the DSK thing to make you sick.
DBRS has downgraded Portugal to BBB+ [Trend Negative] and published a commentary titled The Effect of Sovereign Risk on Securitisations in the Euro Area.
Chinese equities got hit today:
Jim Chanos, the hedge-fund manager known for predicting Enron Corp.’s 2001 collapse, says he’d short sell Chinese companies listed in the U.S. if it were feasible to borrow shares to open the bearish positions.
The Bloomberg Chinese Reverse Mergers Index has plunged 41 percent since Nov. 8 amid speculation financial statements from companies such as China MediaExpress Holdings Inc. (CCME) can’t be trusted. The concern intensified this week after Longtop Financial Technologies Ltd. (LFT), whose initial public offering was underwritten by Goldman Sachs Group Inc. and Deutsche Bank AG, said its auditor quit because of false records.
The province joined an elite club of provinces on Tuesday when Standard & Poor’s upgraded its debt rating to triple-A. The only provinces to share the triple-A honour are western neighbours Alberta and British Columbia.
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Rather than quickly spending its newly-earned wealth, the provincial government has put its tax revenue toward paying the bills. S&P gave special credit to Saskatchewan for its “low-and-declining debt burden.” As of March 31, the province’s fiscal year-end, Saskatchewan’s debt totalled $4.6-billion, representing 38 per cent of this year’s projected operating revenues and only 8 per cent of its gross domestic product. Canada’s federal debt-to-GDP ratio sits at around 35 per cent.
Knowing how to actually do something useful can be lucrative:
College students’ choice of major can mean the difference between median earnings of $120,000 for petroleum engineering and $29,000 for counseling psychology, a study by Georgetown University showed.
Of the top 10 undergraduate majors with the highest median salaries, eight were in engineering, including aerospace, chemical and mechanical, according to the study released today by Georgetown’s Center on Education and the Workforce.
It was a mixed day on the Canadian preferred share market, with PerpetualDiscounts gaining 5bp, FixedResets losing 10bp and DeemedRetractibles up 9bp. Not much volatility, but volume was above average. TMX block trading data from the Financial Post is not available at time of writing.
| 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 | -0.0233 % | 2,459.4 |
| FixedFloater | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.0233 % | 3,699.0 |
| Floater | 2.45 % | 2.24 % | 44,857 | 21.65 | 4 | -0.0233 % | 2,655.5 |
| OpRet | 4.87 % | 3.55 % | 61,890 | 0.42 | 9 | -0.0900 % | 2,421.2 |
| SplitShare | 5.22 % | -2.13 % | 57,176 | 0.56 | 6 | -0.0441 % | 2,513.5 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.0900 % | 2,214.0 |
| Perpetual-Premium | 5.74 % | 4.84 % | 134,817 | 0.83 | 9 | 0.0397 % | 2,064.8 |
| Perpetual-Discount | 5.49 % | 5.53 % | 124,634 | 14.52 | 15 | 0.0532 % | 2,165.2 |
| FixedReset | 5.15 % | 3.23 % | 196,523 | 2.86 | 57 | -0.1038 % | 2,308.7 |
| Deemed-Retractible | 5.13 % | 4.90 % | 331,045 | 8.09 | 53 | 0.0874 % | 2,142.1 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| BAM.PR.R | FixedReset | -1.49 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2041-05-24 Maturity Price : 23.39 Evaluated at bid price : 25.81 Bid-YTW : 4.62 % |
| SLF.PR.F | FixedReset | -1.28 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2014-07-30 Maturity Price : 25.00 Evaluated at bid price : 27.10 Bid-YTW : 3.04 % |
| POW.PR.D | Perpetual-Discount | 1.07 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2041-05-24 Maturity Price : 23.44 Evaluated at bid price : 23.70 Bid-YTW : 5.33 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| GWO.PR.N | FixedReset | 228,820 | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.70 Bid-YTW : 3.86 % |
| TRP.PR.C | FixedReset | 114,342 | YTW SCENARIO Maturity Type : Call Maturity Date : 2016-02-29 Maturity Price : 25.00 Evaluated at bid price : 25.70 Bid-YTW : 3.81 % |
| TD.PR.G | FixedReset | 79,995 | YTW SCENARIO Maturity Type : Call Maturity Date : 2014-05-30 Maturity Price : 25.00 Evaluated at bid price : 27.40 Bid-YTW : 3.10 % |
| GWO.PR.G | Deemed-Retractible | 48,080 | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.00 Bid-YTW : 5.33 % |
| BNS.PR.X | FixedReset | 36,115 | YTW SCENARIO Maturity Type : Call Maturity Date : 2014-05-25 Maturity Price : 25.00 Evaluated at bid price : 27.37 Bid-YTW : 3.14 % |
| FTS.PR.G | FixedReset | 30,730 | YTW SCENARIO Maturity Type : Call Maturity Date : 2013-10-01 Maturity Price : 25.00 Evaluated at bid price : 25.88 Bid-YTW : 3.57 % |
| There were 36 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| MFC.PR.F | FixedReset | Quote: 24.92 – 25.24 Spot Rate : 0.3200 Average : 0.2001 YTW SCENARIO |
| CIU.PR.C | FixedReset | Quote: 25.29 – 25.66 Spot Rate : 0.3700 Average : 0.2535 YTW SCENARIO |
| BAM.PR.J | OpRet | Quote: 26.66 – 27.00 Spot Rate : 0.3400 Average : 0.2281 YTW SCENARIO |
| BAM.PR.R | FixedReset | Quote: 25.81 – 26.12 Spot Rate : 0.3100 Average : 0.2211 YTW SCENARIO |
| FTS.PR.F | Perpetual-Discount | Quote: 23.55 – 23.81 Spot Rate : 0.2600 Average : 0.1814 YTW SCENARIO |
| SLF.PR.A | Deemed-Retractible | Quote: 23.26 – 23.50 Spot Rate : 0.2400 Average : 0.1650 YTW SCENARIO |