Information received since the Federal Open Market Committee met in June indicates that economic growth so far this year has been considerably slower than the Committee had expected. Indicators suggest a deterioration in overall labor market conditions in recent months, and the unemployment rate has moved up. Household spending has flattened out, investment in nonresidential structures is still weak, and the housing sector remains depressed.
…
The Committee now expects a somewhat slower pace of recovery over coming quarters than it did at the time of the previous meeting and anticipates that the unemployment rate will decline only gradually toward levels that the Committee judges to be consistent with its dual mandate. Moreover, downside risks to the economic outlook have increased.
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To promote the ongoing economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent. The Committee currently anticipates that economic conditions–including low rates of resource utilization and a subdued outlook for inflation over the medium run–are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013. The Committee also will maintain its existing policy of reinvesting principal payments from its securities holdings. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate.
Financial stocks in the S&P 500, which paced a slide that erased $1 trillion in market value yesterday, rallied 8.2 percent. Bank of America Corp. (BAC) and Citigroup Inc. (C) jumped at least 13 percent. Freeport-McMoRan Copper & Gold Inc. (FCX) gained 7.5 percent as gold advanced to a record.
The S&P 500 jumped 4.7 percent to 1,172.53 at 4 p.m. in New York, after falling as much as 1.6 percent. The Dow Jones Industrial Average rose 429.92 points, or 4 percent, to 11,239.77 today. Both gauges had the biggest gain since March 23, 2009. About 16.8 billion shares changed hands at 4:56 p.m., more than twice the three-month average, Bloomberg data show.
Treasuries rose, pushing 10 and two- year note yields to a all-time lows, after Federal Reserve officials promised to keep benchmark interest rates at record lows through mid-2013 in a bid to revive economic growth.
U.S. debt rallied as central bank policy makers said economic growth is “considerably slower.” The Treasury’s sale of $32 billion in three-year notes drew stronger-than-average demand in the first note sale since Standard & Poor’s cut the U.S. debt rating Aug. 5.
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Yields on 10-year notes fell seven basis points, or 0.07 percentage point, to 2.24 percent at 5 p.m. in New York, according to Bloomberg Bond Trader prices
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Two-year note yields fell six basis points to 0.20 percent. The yield touched 0.1568 percent, lower than the previous record of 0.2283 percent yesterday. Thirty-year bond yields fell one basis point to 3.646 percent.
Korea has banned market efficiency:
South Korea banned equity short sales for three months while the two biggest state-run funds said they may boost investments as the government seeks to shore up a market that’s had its biggest six-day drop in three years.
The Financial Services Commission said it will ban short selling on all shares until Nov. 9 from today. The National Pension Service, the country’s biggest investor, said yesterday it plans to buy more stocks this month than it originally targeted. Korea Teachers Pension said it purchased about 70 billion won of stocks amid the sell-off and may buy more.
South Korea joins Greece this week in banning short selling after the Kospi Index (KOSPI) slumped 17 percent in six days. The gauge reached an intraday level yesterday that was 24 percent below its May 2 record close. Domestic institutions should play a bigger role to contain volatility that is often caused by sell- offs by overseas investors, the FSC’s Chairman Kim Seok Dong told lawmakers in parliament yesterday.
TransAlta, proud issuer of TA.PR.D, was put on outlook negative by S&P:
- We are revising our outlook on TransAlta Corp. to negative from stable.
- We are also affirming our ratings, including our ‘BBB’ long-term corporate credit rating, on the company.
- We base the outlook revision on ongoing weaker-than-expected credit metrics and our view that there is a one in three chance that they will not improve in line with our targets of 4x adjusted funds from operations (FFO)-to-interest and 20% FFO-to-debt within the next two years.
- Factors contributing to increased business risk include exposure to current weaker prices in the Pacific Northwest, the possibility of material penalties resulting from arbitration, and fleet renewal requirements that could lead to increasing capital spending.
DBRS has commented on proposed credit rating agency rules:
The first contradiction relates to the mandated rules’ effect on competition. Although fostering competition among rating agencies was a primary goal of both the 2006 Act and the Dodd-Frank Act, the proposed rules will be so costly to implement that additional credit rating agencies are unlikely to register as NRSROs and the existing pool of registrants may contract. According to the Commission’s estimates, the projected initial expense attributable to the Dodd-Frank NRSRO rules for a firm of DBRS’s size would exceed $1.8 million, with annual expenses thereafter of roughly $1.3 million. The cost of complying with the new regulations, when added to the substantial cost of complying with the existing NRSRO regulations, threatens to overwhelm all but the largest rating agencies.
The second contradiction is the fact that although NRSRO registration is voluntary, the rating agency regime created under the Dodd-Frank Act in many respects is more onerous than the mandatory regimes imposed on broker-dealers and investment advisers. For example, under the new rules, an NRSRO will have to disclose up to two dozen specific items of information each time it issues a credit rating. On the other hand, a broker-dealer who publishes a research report on an equity security must disclose only basic information about conflicts of interest and its rating system; while an investment adviser publishing an opinion about a security has only a general fiduciary duty to reveal conflicts of interest. Furthermore, while the chief compliance officers of broker-dealers, investment advisers and NRSROs all must annually review the sufficiency and effectiveness of their compliance programs, only NRSROs must file reports of such reviews with the SEC.
After all this, it is not surprising that the Canadian preferred share market seemed a little confused today, with PerpetualDiscounts winning 43bp, FixedResets up 5bp and DeemedRetractlbles losing 8bp. At least the hammering of Floaters makes sense, with the Fed announcing a two year hold on US policy rates! Volatility was quite good, volume was above 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 | -2.2575 % | 2,237.5 |
| FixedFloater | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -2.2575 % | 3,365.1 |
| Floater | 2.71 % | 2.34 % | 33,723 | 21.40 | 4 | -2.2575 % | 2,415.9 |
| OpRet | 4.90 % | 4.10 % | 54,860 | 0.86 | 9 | -0.0993 % | 2,425.3 |
| SplitShare | 5.44 % | 5.99 % | 65,292 | 2.58 | 4 | -0.8438 % | 2,432.9 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.0993 % | 2,217.7 |
| Perpetual-Premium | 5.73 % | 5.56 % | 140,282 | 5.88 | 14 | 0.3806 % | 2,081.2 |
| Perpetual-Discount | 5.47 % | 5.55 % | 118,930 | 14.55 | 16 | 0.4261 % | 2,181.4 |
| FixedReset | 5.22 % | 3.48 % | 209,884 | 2.80 | 58 | 0.0507 % | 2,296.2 |
| Deemed-Retractible | 5.16 % | 5.04 % | 275,181 | 7.99 | 46 | -0.0794 % | 2,136.5 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| BAM.PR.K | Floater | -4.97 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2041-08-09 Maturity Price : 16.25 Evaluated at bid price : 16.25 Bid-YTW : 3.26 % |
| BAM.PR.B | Floater | -4.15 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2041-08-09 Maturity Price : 16.15 Evaluated at bid price : 16.15 Bid-YTW : 3.28 % |
| GWO.PR.G | Deemed-Retractible | -2.41 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.25 Bid-YTW : 5.69 % |
| BNS.PR.K | Deemed-Retractible | -2.19 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.60 Bid-YTW : 5.05 % |
| BNA.PR.C | SplitShare | -2.05 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2019-01-10 Maturity Price : 25.00 Evaluated at bid price : 20.57 Bid-YTW : 7.70 % |
| FTS.PR.G | FixedReset | -1.70 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2041-08-09 Maturity Price : 23.87 Evaluated at bid price : 25.95 Bid-YTW : 3.51 % |
| SLF.PR.A | Deemed-Retractible | -1.70 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.61 Bid-YTW : 6.10 % |
| IAG.PR.A | Deemed-Retractible | -1.60 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.50 Bid-YTW : 6.57 % |
| BAM.PR.T | FixedReset | -1.24 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2041-08-09 Maturity Price : 22.65 Evaluated at bid price : 23.80 Bid-YTW : 4.14 % |
| RY.PR.Y | FixedReset | -1.03 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2014-11-24 Maturity Price : 25.00 Evaluated at bid price : 26.82 Bid-YTW : 3.68 % |
| HSB.PR.C | Deemed-Retractible | -1.03 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.01 Bid-YTW : 5.71 % |
| BAM.PR.X | FixedReset | -1.00 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2041-08-09 Maturity Price : 22.63 Evaluated at bid price : 23.76 Bid-YTW : 3.78 % |
| TD.PR.O | Deemed-Retractible | 1.02 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.75 Bid-YTW : 5.02 % |
| IGM.PR.B | Perpetual-Premium | 1.04 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2018-12-31 Maturity Price : 25.00 Evaluated at bid price : 25.26 Bid-YTW : 5.79 % |
| CM.PR.D | Perpetual-Premium | 1.12 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2012-04-30 Maturity Price : 25.00 Evaluated at bid price : 25.30 Bid-YTW : 4.23 % |
| CU.PR.B | Perpetual-Premium | 1.21 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2012-06-01 Maturity Price : 25.00 Evaluated at bid price : 25.10 Bid-YTW : 5.07 % |
| TD.PR.K | FixedReset | 1.55 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2014-07-31 Maturity Price : 25.00 Evaluated at bid price : 26.91 Bid-YTW : 3.60 % |
| BAM.PR.I | OpRet | 1.60 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2012-06-30 Maturity Price : 25.00 Evaluated at bid price : 25.40 Bid-YTW : 4.37 % |
| CIU.PR.A | Perpetual-Discount | 1.71 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2041-08-09 Maturity Price : 22.39 Evaluated at bid price : 22.70 Bid-YTW : 5.06 % |
| RY.PR.A | Deemed-Retractible | 1.78 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.96 Bid-YTW : 4.97 % |
| PWF.PR.F | Perpetual-Discount | 1.87 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2041-08-09 Maturity Price : 24.21 Evaluated at bid price : 24.50 Bid-YTW : 5.38 % |
| BAM.PR.R | FixedReset | 1.96 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2041-08-09 Maturity Price : 23.33 Evaluated at bid price : 25.50 Bid-YTW : 3.96 % |
| BMO.PR.K | Deemed-Retractible | 2.52 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2016-11-25 Maturity Price : 25.00 Evaluated at bid price : 25.67 Bid-YTW : 4.65 % |
| MFC.PR.F | FixedReset | 2.89 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.60 Bid-YTW : 3.79 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| BNS.PR.Q | FixedReset | 107,419 | RBC crossed 100,000 at 25.90. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.90 Bid-YTW : 3.16 % |
| MFC.PR.C | Deemed-Retractible | 99,006 | Desjardins crossed 85,000 at 21.60. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.50 Bid-YTW : 6.48 % |
| MFC.PR.A | OpRet | 56,809 | RBC crossed 35,600 at 25.25. YTW SCENARIO Maturity Type : Soft Maturity Maturity Date : 2015-12-18 Maturity Price : 25.00 Evaluated at bid price : 25.16 Bid-YTW : 4.10 % |
| PWF.PR.K | Perpetual-Discount | 42,395 | Scotia crossed blocks of 25,000 and 14,500 at 23.50. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2041-08-09 Maturity Price : 22.99 Evaluated at bid price : 23.25 Bid-YTW : 5.35 % |
| RY.PR.A | Deemed-Retractible | 37,857 | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.96 Bid-YTW : 4.97 % |
| BMO.PR.J | Deemed-Retractible | 35,637 | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.91 Bid-YTW : 4.54 % |
| There were 39 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| BAM.PR.O | OpRet | Quote: 25.15 – 26.45 Spot Rate : 1.3000 Average : 0.9026 YTW SCENARIO |
| BNA.PR.C | SplitShare | Quote: 20.57 – 21.79 Spot Rate : 1.2200 Average : 0.8536 YTW SCENARIO |
| IAG.PR.A | Deemed-Retractible | Quote: 21.50 – 22.37 Spot Rate : 0.8700 Average : 0.6075 YTW SCENARIO |
| CU.PR.A | Perpetual-Premium | Quote: 24.55 – 25.15 Spot Rate : 0.6000 Average : 0.3841 YTW SCENARIO |
| BNS.PR.K | Deemed-Retractible | Quote: 24.60 – 24.95 Spot Rate : 0.3500 Average : 0.2038 YTW SCENARIO |
| RY.PR.E | Deemed-Retractible | Quote: 23.81 – 24.43 Spot Rate : 0.6200 Average : 0.4757 YTW SCENARIO |