I find the US Municipal bond market of great interest, simply because the investor profile is so similar to that of Canadian preferred shares. I was recently looking for some estimates of holdings by investor group; now that I don’t need it any more, of course, I found it:
Citigroup Inc. analysts say there’s something missing from the Federal Reserve’s tally of the municipal-bond market’s size: more than $700 billion of the securities were bought directly by individual investors.
The Fed’s quarterly figures, released yesterday, put the market at $2.9 trillion, 37 percent of which the central bank says is owned by households. Citigroup’s analysts George Friedlander, Mikhail Foux and Vikram Rai say individuals play an even larger role, holding half of a $3.7 trillion market that has been whipsawed by speculation about municipal defaults that is now starting to ebb.
“The instability in the muni market in late 2010 was exacerbated by individual investors becoming overly concerned about the fiscal strength of state and local governments,” Rai said in an e-mail after Citigroup’s report on the market was published on June 3. “Unsurprisingly, as credit fears abated, it resulted in lower volatility and a rally in the tax-exempt and taxable market.”
…
Citigroup’s analysts didn’t challenge the Federal Reserve’s data on holdings by institutional investors such as mutual funds and insurance companies, which can be gleaned from corporate filings and other outside data sources. Without similar information on households, the analysts say, the Fed had to guess.By underestimating the market, they’ve also diminished the extent to which individuals dominate it, they said. Citigroup estimates individuals they held $1.8 trillion, or half, of the municipal bonds outstanding at the end of 2010, compared with about $1.1 trillion estimated by the Federal Reserve.
“We always believed that the influence of retail investors in the municipal market was understated,” Rai said.
The Federal Reserve said it’s looking into the discrepancy, said Susan Stawick, a spokeswoman.
- On May 11, 2011, the Canadian Department of Finance released a consultation paper on its proposed covered bond legislation.
- We believe that, in general, the introduction of specific covered bond legislation would be positive, and would likely provide further assurances for investors.
- However, we note that the proposed codification of an overcollateralization cap may limit an issuer’s ability to manage and support its covered bond program by increasing the level of collateral and may, under our current analytical approach, potentially constrain the ability of issuers to achieve or maintain the highest potential ratings.
One particular area of concern for DBRS is the proposed cap of 10% on the amount of overcollateralization that will be permitted for a Canadian covered bond program. In the event that additional overcollateralization is necessary to maintain a AAA rating on the covered bonds that have been issued, the 10% cap on overcollateralization may adversely affect the ratings on the existing covered bonds. However, DBRS notes that all of the existing Canadian covered bond programs rated by DBRS to date currently have required overcollateralization amounts that are less than 10%. Another area of concern for DBRS is the proposal to standardize asset valuation, particularly if an issuer is not permitted to issue covered bonds outside of the legislative framework, as the proposed asset valuation method may not be consistent with what is currently used in the Canadian covered bond programs that have been rated by DBRS to date.
Fabulous Fab is going to trial:
Fabrice Tourre, the Goldman Sachs Group Inc. (GS) trader accused of misleading investors in a collateralized debt obligation, failed to get a suit brought by the U.S. Securities and Exchange Commission dismissed.
While U.S. District Judge Barbara Jones in Manhattan did narrow some of the claims against him in her decision today, she said the SEC met its burden that Tourre violated a securities law designed to prevent fraudulent sales of securities and should stand trial on that claim.
The SEC initially sued the London-based trader in April 2010, saying he defrauded investors by not disclosing that hedge fund Paulson & Co. had helped pick the underlying securities for a CDO as Abacus and planned to bet against them. After reaching a $550 million settlement with New York-based Goldman Sachs, the SEC filed a new claim against Tourre, saying he gave the company “substantial assistance” as it misled investors.
…
Citing last year’s U.S. Supreme Court ruling in Morrison v. National Australia Bank, the judge threw out some claims involving Duesseldorf, Germany-based IKB Deutsche Industriebank AG, which allegedly lost almost all of its $150 million investment, and ABN Amro Bank NV, which assumed the credit risk associated with a portion of Abacus.
…
Jones let the case proceed on a claim against Tourre that he “knowingly, recklessly or negligently” made misrepresentations in the sale of securities to ACA Management LLC, IKB and ABN Amro.
Rhapsody in Yellow? A little cacaphonous today. The issues went ex-Dividend – good luck to anybody attempting to draw conclusions from the Dividend Drop Off Rate, which will be 100% if the total return is to be 0%.
| YLO Issues, 2011-6-10 | |||||||
| Ticker | Quote 6/9 |
Quote 6/10 |
Bid YTW 6/10 |
YTW Scenario 6/10 |
Performance 6/10 (bid/bid) |
Div. | Div. DOR |
| YLO.PR.A | 22.25-39 | 22.51-78 | 11.28% | Soft Maturity 2012-12-30 |
+2.36% | 0.265630 | -98% |
| YLO.PR.B | 16.51-64 | 16.24-39 | 13.58% | Soft Maturity 2017-06-29 |
+0.92% | 0.3125 | 51% |
| YLO.PR.C | 16.85-95 | 16.24-39 | 9.95% | Limit Maturity | -1.12% | 0.42188 | 145% |
| YLO.PR.D | 17.01-41 | 16.75-80 | 9.84% | Limit Maturity | +1.01% | 0.43125 | 60% |
It was an off day for the Canadian preferred share market, with PerpetualDiscounts losing 12bp, FixedResets down 3bp and DeemedRetractibles shrinking 5bp. Volatility was again muted, with no entries in the Performance Highlights table, but volume picked up and was only a little below average – RY DeemedRetractibles dominated the volume table.
| 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 | 0.0000 % | 2,476.4 |
| FixedFloater | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.0000 % | 3,724.4 |
| Floater | 2.43 % | 2.22 % | 42,593 | 21.68 | 4 | 0.0000 % | 2,673.8 |
| OpRet | 4.86 % | 2.78 % | 69,094 | 0.38 | 9 | -0.0642 % | 2,426.1 |
| SplitShare | 5.24 % | -0.07 % | 61,254 | 0.51 | 6 | -0.0899 % | 2,502.9 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.0642 % | 2,218.5 |
| Perpetual-Premium | 5.66 % | 4.91 % | 151,976 | 1.40 | 12 | -0.1460 % | 2,075.9 |
| Perpetual-Discount | 5.44 % | 5.53 % | 120,203 | 14.49 | 18 | -0.1187 % | 2,183.1 |
| FixedReset | 5.14 % | 3.22 % | 183,838 | 2.82 | 57 | -0.0337 % | 2,314.7 |
| Deemed-Retractible | 5.07 % | 4.87 % | 304,904 | 8.09 | 47 | -0.0455 % | 2,154.1 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| No individual gains or losses exceeding 1%! | |||
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| RY.PR.B | Deemed-Retractible | 206,620 | RBC crossed 198,200 at 24.95. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.89 Bid-YTW : 4.81 % |
| RY.PR.A | Deemed-Retractible | 109,675 | TD crossed 43,100 at 24.36 and 25,000 at 24.35. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.30 Bid-YTW : 4.84 % |
| RY.PR.H | Deemed-Retractible | 80,810 | Nesbitt crossed 75,000 at 26.25. YTW SCENARIO Maturity Type : Call Maturity Date : 2017-06-23 Maturity Price : 25.00 Evaluated at bid price : 26.23 Bid-YTW : 4.78 % |
| RY.PR.E | Deemed-Retractible | 58,400 | TD crossed 50,000 at 24.38. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.34 Bid-YTW : 4.87 % |
| CM.PR.K | FixedReset | 54,820 | Nesbitt crossed 50,000 at 26.80. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-08-30 Maturity Price : 25.00 Evaluated at bid price : 26.75 Bid-YTW : 3.26 % |
| BNS.PR.J | Deemed-Retractible | 53,433 | TD crossed blocks of 20,000 and 23,600, both at 25.60. YTW SCENARIO Maturity Type : Call Maturity Date : 2013-11-28 Maturity Price : 25.00 Evaluated at bid price : 25.54 Bid-YTW : 4.61 % |
| There were 29 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| MFC.PR.B | Deemed-Retractible | Quote: 22.56 – 22.89 Spot Rate : 0.3300 Average : 0.2033 YTW SCENARIO |
| NA.PR.P | FixedReset | Quote: 27.60 – 27.90 Spot Rate : 0.3000 Average : 0.2038 YTW SCENARIO |
| GWO.PR.M | Deemed-Retractible | Quote: 25.30 – 25.60 Spot Rate : 0.3000 Average : 0.2043 YTW SCENARIO |
| TD.PR.P | Deemed-Retractible | Quote: 25.80 – 26.04 Spot Rate : 0.2400 Average : 0.1490 YTW SCENARIO |
| IAG.PR.E | Deemed-Retractible | Quote: 25.80 – 26.09 Spot Rate : 0.2900 Average : 0.2073 YTW SCENARIO |
| FTS.PR.H | FixedReset | Quote: 25.58 – 25.85 Spot Rate : 0.2700 Average : 0.1991 YTW SCENARIO |