Greece’s sovereign credit rating was cut three steps by Moody’s Investors Service, which said the European Union’s financing package for the debt-laden nation implies “substantial economic losses” for private creditors.
Greece’s long-term foreign currency debt was downgraded to Ca from Caa1, the ratings company said in a statement in London today. Moody’s assigned a developing outlook to the ratings and said it will re-assess the credit risk profile of any outstanding or new securities issued by the Greek government after Greece’s debt exchange has been completed.
It occurs to me … one way that the Greek government hid debt was to enter into currency swaps with a present value far different from zero at trade-time. This was not just allowable under the rules at that time, but even encouraged and everybody knew they were doing it; this made it a little harder for the politicians to say it was all the brokers’ (Goldman Sachs’) fault, but somehow they managed.
I haven’t seen anything about these things for a while. Could it be possible that lenders through a swap facility will get off scot-free?
Who wants to take responsibility for this bond market effect?
A cut in the U.S. government’s AAA grade could force investors to sell asset-backed securities tied to student loans, causing spreads to widen “significantly,” according to Citigroup Inc.
“A ratings downgrade would be a significant blow” to the $250 billion government-guaranteed sector, Citigroup analysts led by Mary Kane said in a July 22 report. “The likelihood of forced selling is elevated.”
Citigroup sees a 50 percent chance of a ratings cut this year as the U.S. struggles to reduce its long-term debt. Many investors buy student-loan securities specifically because they’re so highly rated and a U.S. government credit risk, according to analysts at the New York-based lender. Money managers with rating-based guidelines would be forced to sell into a sinking market, affecting the sector more than other asset-backed debt tied to consumers, commercial mortgages and corporate loans, they wrote.
The situation worries me. I don’t think there’s any imminent danger, and I’ve written about this before … but remember the last days of the Roman Republic. You had two parties: the “good men” and the “populists”, nominally representing basically the old traditional oligarchy and the new guys looking in, respectively. Their main political purpose was to ensure that the other party couldn’t do anything – so little got done and everybody got frustrated and angry. Then along came Julius Caesar: smart, ambitious and ruthless, who staged a coup. All the US needs is another two decades or so of log-jam, and I’ll start taking bets.
S&P revised its outlook on BAM:
- We are revising our outlook on Brookfield Asset Management to stable from negative.
- At the same time, we are affirming our ratings on the company, including our ‘A-‘ corporate credit and ‘A-2’ short-term ratings.
- We base the outlook revision on the improved operating performance and outlook in Brookfield’s operating subsidiaries. It also reflects the
company’s continued ability to execute its asset management strategy by attracting external investment capital, while maintaining company-level cash flow coverage measures in line with our expectation for the ratings.
It was a good day for the Canadian preferred share market, with PerpetualDiscounts winning 19bp, FixedResets up 1bp and DeemedRetractibles gaining 17bp. Volatility was minimal; volume was low.
| 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 | 0.3066 % | 2,455.7 |
| FixedFloater | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.3066 % | 3,693.4 |
| Floater | 2.47 % | 2.24 % | 38,826 | 21.69 | 4 | 0.3066 % | 2,651.6 |
| OpRet | 4.84 % | 1.99 % | 57,920 | 0.18 | 9 | 0.1110 % | 2,456.4 |
| SplitShare | 5.23 % | 1.44 % | 51,791 | 0.59 | 6 | -0.1330 % | 2,511.2 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.1110 % | 2,246.1 |
| Perpetual-Premium | 5.67 % | 4.96 % | 134,826 | 0.58 | 13 | 0.0806 % | 2,097.2 |
| Perpetual-Discount | 5.42 % | 5.42 % | 109,456 | 14.75 | 17 | 0.1858 % | 2,211.7 |
| FixedReset | 5.14 % | 3.08 % | 198,269 | 2.64 | 58 | 0.0130 % | 2,327.4 |
| Deemed-Retractible | 5.06 % | 4.69 % | 268,234 | 7.88 | 47 | 0.1725 % | 2,174.9 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| GWO.PR.I | Deemed-Retractible | 1.07 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.76 Bid-YTW : 5.71 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| BMO.PR.M | FixedReset | 511,230 | An extraordinary number of block trades went through today, every single one of them at 26.23! Nesbitt crossed 157,900 and RBC bought 25,000 and 10,000 from anonymous. RBC then bought 16,400 and 23,600 from Nesbitt; then crossed another 50,000. Scotia crossed 10,000; TD bought 10,000 from Nesbitt. RBC bought 43,400 from Nesbitt. TD crossed 25,000; RBC crossed blocks of 25,000 shares, 10,000 and 24,100; and TD closed off proceedings by crossing 26,700. YTW SCENARIO Maturity Type : Call Maturity Date : 2013-08-25 Maturity Price : 25.00 Evaluated at bid price : 26.26 Bid-YTW : 2.92 % |
| BNS.PR.Z | FixedReset | 135,688 | National sold 10,000 to TD at 24.20, then 10,000 to anonymous at 24.08, then blocks of 20,000 and 11,500 to RBC at 24.00; then 36,900 to TD at 24.05. TD crossed 25,000 at 24.16. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.20 Bid-YTW : 3.92 % |
| TD.PR.M | OpRet | 101,500 | Nesbitt crossed 50,000 at 25.55; Desjardins and RBC both crossed 25,000 at the same price. YTW SCENARIO Maturity Type : Call Maturity Date : 2011-08-24 Maturity Price : 25.50 Evaluated at bid price : 25.56 Bid-YTW : 0.82 % |
| BAM.PR.X | FixedReset | 78,495 | National crossed 60,000 at 24.98. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2041-07-25 Maturity Price : 23.06 Evaluated at bid price : 24.85 Bid-YTW : 4.00 % |
| BMO.PR.N | FixedReset | 72,800 | RBC crossed 65,000 at 27.61. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-02-25 Maturity Price : 25.00 Evaluated at bid price : 27.60 Bid-YTW : 2.76 % |
| TD.PR.K | FixedReset | 71,274 | Nesbitt crossed 67,000 at 27.33. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-07-31 Maturity Price : 25.00 Evaluated at bid price : 27.34 Bid-YTW : 2.97 % |
| There were 22 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| POW.PR.B | Perpetual-Discount | Quote: 24.40 – 24.74 Spot Rate : 0.3400 Average : 0.2172 YTW SCENARIO |
| FTS.PR.F | Perpetual-Discount | Quote: 24.60 – 24.98 Spot Rate : 0.3800 Average : 0.2921 YTW SCENARIO |
| RY.PR.N | FixedReset | Quote: 26.81 – 27.13 Spot Rate : 0.3200 Average : 0.2411 YTW SCENARIO |
| RY.PR.E | Deemed-Retractible | Quote: 24.31 – 24.71 Spot Rate : 0.4000 Average : 0.3242 YTW SCENARIO |
| FTS.PR.E | OpRet | Quote: 27.15 – 27.52 Spot Rate : 0.3700 Average : 0.2962 YTW SCENARIO |
| W.PR.H | Perpetual-Discount | Quote: 24.74 – 24.99 Spot Rate : 0.2500 Average : 0.1830 YTW SCENARIO |