PrefBlog

Here’s a sign of the times:

Bank of New York Mellon Corp., the world’s largest custody bank, said it will charge clients a 13 basis point fee for “extraordinarily high” cash deposits.

“We have seen a growing level of deposits on our balance sheet from clients seeking a safe haven in light of the global interest rate and credit environment,” the company said today in an e-mailed statement.

It’s not clear whether this means the net yield to clients will be negative. But negative yields are quite fashionable:

Money market rates, which surged during the debate to raise the federal borrowing cap, dropped below zero percent as Europe’s sovereign-debt crisis bolstered U.S. government securities’ appeal as the world’s safest assets.

Demand for short-term government debt instruments is rising as Treasury bills are expected to remain in short supply after the U.S. signaled yesterday it won’t increase sales of the securities even following lawmakers’ agreement to raise the debt ceiling.
…
European Central Bank President Jean-Claude Trichet said today the ECB has resumed bond purchases and will offer banks more cash to stop the region’s sovereign-debt crisis from engulfing Italy and Spain.

One-month Treasury bill rates traded at zero percent today after earlier falling to negative 0.0102 percent. They closed yesterday at 0.0051 percent yesterday and reached 0.1825 percent on July 29, the highest since February 2009.

Equities were interesting today:

A global rout in equities drove the Standard & Poor’s 500 Index to its worst slump since February 2009, while two-year Treasury yields plunged to a record low amid concern the economy is weakening. The yen pared losses, recovering from the biggest drop versus the dollar since 2008 that was triggered by Japan selling its currency.

The S&P 500 tumbled 4.8 percent to 1,200.07 at 4 p.m. in New York with futures on the gauge slipping 0.2 percent as of 6:17 p.m. The S&P 500 has dropped 11 percent since July 22, the biggest loss over the same amount of time since March 2009. The MSCI All-Country World Index slid 4.1 percent as Brazil’s stocks slumped to a two-year low and Switzerland’s entered a bear market. Two-year yields declined as low as 0.25 percent. The yen sank 4.1 percent against the dollar before trimming its loss almost in half. Oil sank 5.8 percent to help the Thomson Reuters/Jefferies CRB Index of materials erase its 2011 gain.

The Canadian preferred share market was also affected, but not to nearly the same degree (unless you own YLO preferreds), as PerpetualDiscounts lost 17bp, FixedResets were down 10bp and DeemedRetractibles were off 10bp. Volatility was high, comprised entirely of losers. Volume was good.

PerpetualDiscounts now yield 5.44%, equivalent to 7.07% interest at the standard equivalency factor of 1.3x. Long Corporates now yield about 4.9% (!), so the pre-tax interest equivalent spread is now about 215bp, a sharp increase from the 185bp reported on July 29 as PerpetualDiscounts have remained stable while long corporate yields plummetted.

This entry was posted on Thursday, August 4th, 2011 at 11:18 pm and is filed under Market Action. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.