Both Yellow Media common and Sino-Forest common will be removed from the MSCI world index.
Predictably, it doesn’t look as if the proposed European financial transaction tax is going anywhere:
Banks criticized Franco-German plans for a tax on financial transactions, saying they will jeopardize economic growth and distort markets, as the British, Dutch and Swedish governments distanced themselves from the proposals.
…
The British government, which oversees Europe’s biggest financial center, is preparing to clash with its French and German counterparts over the levy, which would be applied in all 27 European Union countries. Finance chiefs failed to agree on a transactions tax in September 2010, amid opposition from nations including the U.K. The Swedish and Dutch governments also said today that they oppose the plans. EU taxation proposals require unanimous support from the bloc’s 27 governments to become law.
We have our first rationale for dissent from the last FOMC statement:
Federal Reserve Bank of Dallas President Richard Fisher said the central bank shouldn’t ease monetary policy whenever there is a big drop in U.S. stock prices, an action he said some traders might view as a “Bernanke put.”
“My long-standing belief is that the Federal Reserve should never enact such asymmetric policies to protect stock market traders and investors,” Fisher said today in prepared remarks in Midland, Texas. “I believe my FOMC colleagues share this view.”
Fisher’s comments offered his first explanation of his dissent from the Federal Open Market Committee decision last week to specify a date for their commitment to low borrowing costs. The Fed said the benchmark interest rate will stay in a range of zero to 0.25 percent at least through mid-2013. The new language replaces a prior promise to keep rates low for an “extended period.”
The shape of the Treasury curve also attracted notice:
The extra yield Treasury investors get to hold 30-year bonds instead of two-year notes shrank to the narrowest in a week on speculation the U.S. economic recovery is stalling.
The long bonds rose as much as two points as stocks pared gains. Federal Reserve Bank of Philadelphia President Charles Plosser told Bloomberg Radio today that policy makers should have waited to see how the economy performed before pledging on Aug. 9 to hold interest rates at record lows for two years.
…
The difference between yields on two-year notes and 30-year bonds shrank to 3.37 percentage points at 5 p.m. in New York, from 3.48 percentage points yesterday. The spread was the narrowest since Aug. 10, when it was the smallest since October 2010.
Closet indexing is alive and well:
The study by Lipper and Avana, a German asset management boutique firm, found that portfolio managers started a risk management system that measured relative risk compared to their benchmarks instead of measuring absolute risk in terms of losses.
The new management guidelines did not meet the expectations of private investors and led to the following conclusions:
Relative risk management systems are penalizing fund managers if their risk compared to the benchmark moved above a defined level. The study found that a fund manager was not allowed to hold a high percentage of his portfolio in cash or decrease the weighting of a specific industry to zero, as this would increase the risk of the portfolio relative to the benchmark.
As a result, managers moved their allocations closer to the benchmarks in market downturns to avoid penalties. Conversely, if a fund lost 45 percent, while the respective benchmark had lost 50 percent, for example, the fund manager could be rewarded for his outperformance, even as he lost money for investors.
I don’t see anything wrong with the tendency expressed in the last sentence – or, indeed, with the concept of measuring relative risk compared to benchmarks! But I don’t believe outperformance happens much.
DBRS Inc. (DBRS) has downgraded the Republic of Ireland’s long-term foreign and local currency debt to A (low) from “A”. The trend on both ratings remains Negative. In spite of strong political commitment to fiscal consolidation and lower interest rates on official loans, the downgrade reflects weaker than expected growth prospects. As a result, public debt ratios are estimated to peak in 2013 at higher levels than previously anticipated. The Negative trend reflects DBRS’s view that downside risks to Ireland’s export-led recovery persist, particularly given heightened uncertainty over the economic outlook in the United States and Europe and ongoing turbulence in financial markets.
…
Weaker than expected growth is likely to push public debt ratios higher than previously anticipated. In our revised baseline scenario, Ireland’s gross general government debt peaks at 120% of GDP in 2013 and gradually declines thereafter. This excludes NAMA bonds and its associated assets.
DBRS also changed the trend on Spain to negative:
DBRS Inc. (DBRS) has today confirmed the ratings of the Kingdom of Spain’s long-term foreign and local currency debt at AA and changed the trends from Stable to Negative.
The ratings balance Spain’s relatively low public-sector indebtedness and its progress in achieving its fiscal targets with high fiscal deficits, high unemployment, a fragile recovery and a weakened financial sector. The Negative trends reflect the potentially adverse effects of the sharp rise in uncertainty in financial markets on economy-wide funding conditions and the increased risks to the growth outlook of the United States that could affect both Europe and Spain’s export-based recovery.
They soon after published a correction which commenced:
DBRS Inc. (DBRS) has today confirmed the ratings of the Kingdom of Spain’s long-term foreign and local currency debt at AA and changed the trend from Stable to Negative.
The ratings balance Spain’s relatively low public-sector indebtedness and its progress in achieving its fiscal targets with high fiscal deficits, high unemployment, a fragile recovery and a weakened financial sector. The Negative trends reflect the potentially adverse effects of the sharp rise in uncertainty in financial markets on economy-wide funding conditions, and the increased risks to the growth outlook of the United States that could affect both Europe’s and Spain’s export-based recovery. This concern goes beyond the direct trade link between the United States and Spain, which is limited, as there may be more widespread consequences on growth and trade in Europe.
It was a very strong day for the Canadian preferred share market, with PerpetualDiscounts up 36bp, FixedResets gaining 34bp and DeemedRetractibles winning 48bp. Volatility was good, as might be inferred from the index performances; volume was average.
PerpetualDiscounts now yield 5.49%, equivalent to 7.14% interest at the standard equivalency factor of 1.3x. Long Corporates now yield about 4.9%, so the pre-tax interest-equivalent spread is not about 225bp, a good tightening from the 240bp reported on August 10 derived from movement in both sectors.
| 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 | 1.3970 % | 2,200.2 |
| FixedFloater | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 1.3970 % | 3,309.1 |
| Floater | 2.76 % | 2.60 % | 30,729 | 20.80 | 4 | 1.3970 % | 2,375.7 |
| OpRet | 4.88 % | 3.54 % | 57,176 | 0.12 | 9 | 0.0645 % | 2,445.9 |
| SplitShare | 5.32 % | 2.22 % | 59,882 | 0.53 | 4 | -0.2460 % | 2,494.2 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.0645 % | 2,236.6 |
| Perpetual-Premium | 5.67 % | 5.15 % | 134,132 | 2.02 | 14 | 0.1230 % | 2,102.1 |
| Perpetual-Discount | 5.39 % | 5.49 % | 108,692 | 14.60 | 16 | 0.3597 % | 2,215.7 |
| FixedReset | 5.15 % | 3.11 % | 213,810 | 2.71 | 59 | 0.3378 % | 2,318.2 |
| Deemed-Retractible | 5.05 % | 4.64 % | 269,749 | 7.99 | 46 | 0.4778 % | 2,186.4 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| CM.PR.K | FixedReset | -1.16 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2014-07-31 Maturity Price : 25.00 Evaluated at bid price : 26.36 Bid-YTW : 3.50 % |
| TRP.PR.A | FixedReset | -1.11 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2041-08-17 Maturity Price : 23.56 Evaluated at bid price : 25.76 Bid-YTW : 3.30 % |
| GWO.PR.I | Deemed-Retractible | 1.04 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.40 Bid-YTW : 5.96 % |
| FTS.PR.F | Perpetual-Discount | 1.07 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2041-08-17 Maturity Price : 24.22 Evaluated at bid price : 24.51 Bid-YTW : 5.00 % |
| SLF.PR.E | Deemed-Retractible | 1.09 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.27 Bid-YTW : 6.03 % |
| SLF.PR.D | Deemed-Retractible | 1.14 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.20 Bid-YTW : 6.02 % |
| SLF.PR.B | Deemed-Retractible | 1.20 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.61 Bid-YTW : 5.62 % |
| PWF.PR.A | Floater | 1.25 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2041-08-17 Maturity Price : 20.25 Evaluated at bid price : 20.25 Bid-YTW : 2.60 % |
| ELF.PR.G | Perpetual-Discount | 1.26 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2041-08-17 Maturity Price : 20.91 Evaluated at bid price : 20.91 Bid-YTW : 5.75 % |
| HSB.PR.D | Deemed-Retractible | 1.30 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.85 Bid-YTW : 5.19 % |
| MFC.PR.C | Deemed-Retractible | 1.59 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.30 Bid-YTW : 6.03 % |
| MFC.PR.B | Deemed-Retractible | 1.62 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.65 Bid-YTW : 6.00 % |
| GWO.PR.H | Deemed-Retractible | 1.62 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.90 Bid-YTW : 5.52 % |
| BAM.PR.X | FixedReset | 2.07 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2041-08-17 Maturity Price : 22.82 Evaluated at bid price : 24.21 Bid-YTW : 3.65 % |
| SLF.PR.A | Deemed-Retractible | 2.07 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.62 Bid-YTW : 5.56 % |
| BAM.PR.K | Floater | 2.48 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2041-08-17 Maturity Price : 16.51 Evaluated at bid price : 16.51 Bid-YTW : 3.21 % |
| BAM.PR.B | Floater | 2.79 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2041-08-17 Maturity Price : 16.60 Evaluated at bid price : 16.60 Bid-YTW : 3.19 % |
| CIU.PR.C | FixedReset | 15.76 % | The closing (or last?) quotes on this issue have been all over the map recently and this doesn’t mean anything. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2041-08-17 Maturity Price : 22.56 Evaluated at bid price : 23.50 Bid-YTW : 3.09 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| SLF.PR.H | FixedReset | 316,980 | Recent new issue. This is more volume than it had on the day it closed! YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.79 Bid-YTW : 3.86 % |
| MFC.PR.D | FixedReset | 94,527 | TD bought 14,400 from RBC at 27.39, then crossed 40,000 at the same price. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-06-19 Maturity Price : 25.00 Evaluated at bid price : 27.36 Bid-YTW : 3.51 % |
| BMO.PR.N | FixedReset | 47,172 | Scotia crossed 43,000 at 27.25. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-02-25 Maturity Price : 25.00 Evaluated at bid price : 27.19 Bid-YTW : 2.84 % |
| CM.PR.G | Perpetual-Premium | 47,100 | TD crossed 20,000 at 25.10. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-05-01 Maturity Price : 25.00 Evaluated at bid price : 25.07 Bid-YTW : 5.41 % |
| CM.PR.D | Perpetual-Premium | 42,447 | TD crossed blocks of 25,000 and 10,900, both at 25.40. YTW SCENARIO Maturity Type : Call Maturity Date : 2011-09-16 Maturity Price : 25.25 Evaluated at bid price : 25.40 Bid-YTW : 1.68 % |
| TD.PR.R | Deemed-Retractible | 37,562 | Scotia crossed 25,000 at 26.50. YTW SCENARIO Maturity Type : Call Maturity Date : 2013-04-30 Maturity Price : 26.00 Evaluated at bid price : 26.55 Bid-YTW : 4.24 % |
| There were 30 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| TRI.PR.B | Floater | Quote: 22.85 – 23.50 Spot Rate : 0.6500 Average : 0.4922 YTW SCENARIO |
| FTS.PR.E | OpRet | Quote: 27.21 – 27.79 Spot Rate : 0.5800 Average : 0.4314 YTW SCENARIO |
| BAM.PR.N | Perpetual-Discount | Quote: 21.90 – 22.34 Spot Rate : 0.4400 Average : 0.3010 YTW SCENARIO |
| CM.PR.K | FixedReset | Quote: 26.36 – 26.80 Spot Rate : 0.4400 Average : 0.3013 YTW SCENARIO |
| CIU.PR.A | Perpetual-Discount | Quote: 23.08 – 23.82 Spot Rate : 0.7400 Average : 0.6268 YTW SCENARIO |
| PWF.PR.E | Perpetual-Discount | Quote: 24.80 – 25.18 Spot Rate : 0.3800 Average : 0.2697 YTW SCENARIO |
[…] so the pre-tax interest-equivalent spread is now about 210bp, a tightening from the 225bp reported August 17 as the yields converged […]