The cost to protect the debt of Morgan Stanley (MS) and Goldman Sachs Group Inc. (GS) surged to the highest levels since the weeks after Lehman Brothers Holdings Inc.’s bankruptcy as concern intensified that Europe’s debt crisis will infect the global banking system.
Contracts on Morgan Stanley, the New York-based owner of the world’s largest retail brokerage, soared 92 basis points to a mid-price of 583 basis points as of 4:30 p.m. in New York, the highest since October 2008, according to London-based data provider CMA. Those on Goldman Sachs increased 65 basis points to a mid-price of 395.
Traders pushed the cost of protecting banks and U.S. companies higher after German Finance Minister Wolfgang Schaeuble opposed moves to increase the scale of the euro rescue fund, complicating efforts to prevent a Greek default. Swaps on Bank of America Corp. (BAC) jumped to a record and a measure of U.S. corporate credit risk rose to the most since May 2009.
Knock-on effects are everywhere!
Real estate investment trusts that buy U.S. mortgage debt tumbled to the steepest losses since December 2008, on concern that their main source of financing will be roiled by European bank woes.
Mortgage REITs including Annaly Capital Management Inc. (NLY) and American Capital Agency Corp. (AGNC) dropped as much as 6 percent today, according to a Bloomberg index tracking 33 shares. Losses over the past two days reached as much as 11.1 percent, the biggest fall in almost three years. The shares pared today’s declines to 2.6 percent at 1:50 p.m. in New York.
France and Belgium pledged today to support Dexia SA after the bank’s board met to discuss a possible break-up as Europe’s sovereign-debt crisis reduced its ability to obtain funding. While the repurchase-agreement, or repo, market for government- backed mortgage bonds that many REITS rely on for funding is in “good” shape, it may face pressure if European banks need to retrench, American Capital President Gary Kain said.
Moody’s slashed Italy’s rating three notches:
Italy’s credit rating was cut by Moody’s Investors Service for the first time in almost two decades on concern that Prime Minister Silvio Berlusconi’s government will struggle to reduce the region’s second-largest debt amid chronically weak growth.
Moody’s lowered Italy’s rating three levels to A2 from Aa2, with a negative outlook, the New York-based company said in a statement yesterday. The action comes after Standard & Poor’s downgraded Italy on Sept. 20 for the first time in five years. Italy was last cut by Moody’s in May 1993.
Italy gave final approval last month to a 54 billion-euro ($72 billion) austerity plan aimed at balancing the budget in 2013 that convinced the European Central Bank to buy the nation’s bonds. While the purchases initially brought down bond yields by about 100 basis points, Italy’s borrowing costs remain near record highs because of euro-area debt crisis contagion.
DBRS confirmed ALA.PR.A at Pfd-3:
DBRS has today confirmed the rating on the Medium-Term Notes (MTNs) and Preferred Shares – Cumulative of AltaGas Ltd. (AltaGas or the Company) at BBB and Pfd-3, respectively, both with Stable trends. The confirmation reflects: (1) continuing progress on the Company’s goal to grow and diversify earnings and cash flow while reducing its relative business risk; (2) proactive mitigation of cost overrun risks on its major growth projects; and (3) a prudent financing plan for the 2011 to 2014 growth phase supported by a strong liquidity position. However, DBRS expects some deterioration in the Company’s key credit metrics during the above-noted construction period, with recovery toward the end of the period as expected cash shortfalls are to be primarily funded by debt.
First National, proud issuer of FN.PR.A, has a timing problem:
First National Financial Corporation (TSX: FN) (the “Company” or “FNFC”) today announced its revenue and income before income taxes for the quarter ended September 30, 2011 will both be decreased by approximately $18 million due to realized and unrealized losses on financial instruments. The losses pertain to instruments used for interest rate hedging purposes on mortgages pending securitization. From an economic perspective, to the extent the value of these hedges was unfavourable at September 30, 2011, the value of the hedged mortgages has increased; however, unlike the hedge losses that have been accounted for fully in the third quarter of 2011, the increased value of the mortgages will be recognized as earned over the five- and 10-year terms of the mortgages.
DBRS has today reviewed the announcement by First National Financial Corporation (FNF; rated BBB and Pfd-3 with Stable trends) that third-quarter revenue and pre-tax income would be reduced by approximately $18 million as a result of realized and unrealized losses on financial instruments. There are no rating implications at this time.
While the reduction in pre-tax income is material (it suggests Q3 2011 earnings will be approximately one-third of Q2 2011 earnings), DBRS views the reduction as an accounting timing issue only. Specifically, the value of the vehicle used to hedge interest-rate risk declined (which under International Financial Reporting Standards (IFRS) is reported in the current period), offset by an equivalent increase in the value of the underlying mortgage assets (which will be recognized in earnings over the life of the asset).
The unusually large size of the unrealized loss is related to the reduction in long-term interest rates during the quarter. There are no regulatory capital implications because FNF is not regulated by the Office of the Superintendent of Financial Institutions (OSFI).
Thomson Reuters, proud issuer of TRI.PR.B is locking in current rates for a while:
Standard & Poor’s Ratings Services today said it assigned its ‘A-‘ debt rating to New York-based information solutions provider Thomson Reuters Corp.’s US$350 million 3.95% senior unsecured notes due 2021. We understand that Thomson Reuters will use the proceeds to repay borrowings under its commercial paper program.
It was a very nasty day for the Canadian preferred share market, with PerpetualDiscounts losing 104bp, FixedResets down 59bp and DeemedRetractibles off a mere 53bp. Naturally, the volatility table is quite long today! On a brighter note, one of these entries was a gain! Volume improved from “practically non-existent” to “lousy”.
| 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 | -3.6051 % | 1,960.4 |
| FixedFloater | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -3.6051 % | 2,948.5 |
| Floater | 3.67 % | 3.66 % | 163,632 | 18.18 | 2 | -3.6051 % | 2,116.8 |
| OpRet | 4.86 % | 4.06 % | 57,506 | 1.59 | 8 | -0.3159 % | 2,436.2 |
| SplitShare | 5.45 % | 1.78 % | 51,288 | 0.40 | 4 | -0.7203 % | 2,461.7 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.3159 % | 2,227.6 |
| Perpetual-Premium | 5.72 % | 5.54 % | 111,962 | 5.73 | 13 | -0.5010 % | 2,103.9 |
| Perpetual-Discount | 5.44 % | 5.55 % | 109,832 | 14.61 | 17 | -1.0413 % | 2,211.7 |
| FixedReset | 5.19 % | 3.43 % | 207,409 | 2.85 | 61 | -0.5897 % | 2,303.4 |
| Deemed-Retractible | 5.12 % | 4.68 % | 227,506 | 7.90 | 46 | -0.5302 % | 2,170.5 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| GWO.PR.N | FixedReset | -5.31 % | Not real. The issue traded 7,514 shares in a range of 23.85-19 before closing (or “lasting”?) at 23.01-85, 2×14. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.01 Bid-YTW : 4.09 % |
| BAM.PR.K | Floater | -4.31 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2041-10-04 Maturity Price : 14.21 Evaluated at bid price : 14.21 Bid-YTW : 3.71 % |
| BAM.PR.X | FixedReset | -3.72 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2041-10-04 Maturity Price : 22.13 Evaluated at bid price : 22.80 Bid-YTW : 3.86 % |
| ELF.PR.F | Perpetual-Discount | -3.54 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2041-10-04 Maturity Price : 21.51 Evaluated at bid price : 21.51 Bid-YTW : 6.19 % |
| ELF.PR.G | Perpetual-Discount | -3.43 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2041-10-04 Maturity Price : 20.26 Evaluated at bid price : 20.26 Bid-YTW : 5.89 % |
| MFC.PR.C | Deemed-Retractible | -3.24 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 20.34 Bid-YTW : 7.15 % |
| BAM.PR.T | FixedReset | -3.09 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2041-10-04 Maturity Price : 22.66 Evaluated at bid price : 23.80 Bid-YTW : 4.03 % |
| BAM.PR.B | Floater | -2.90 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2041-10-04 Maturity Price : 14.40 Evaluated at bid price : 14.40 Bid-YTW : 3.66 % |
| CIU.PR.A | Perpetual-Discount | -2.73 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2041-10-04 Maturity Price : 22.47 Evaluated at bid price : 22.80 Bid-YTW : 5.08 % |
| MFC.PR.E | FixedReset | -2.28 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.25 Bid-YTW : 4.84 % |
| SLF.PR.E | Deemed-Retractible | -2.28 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 20.60 Bid-YTW : 6.96 % |
| IAG.PR.C | FixedReset | -2.26 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.51 Bid-YTW : 4.91 % |
| BNA.PR.C | SplitShare | -2.24 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2019-01-10 Maturity Price : 25.00 Evaluated at bid price : 20.55 Bid-YTW : 7.69 % |
| NA.PR.O | FixedReset | -1.94 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2014-02-15 Maturity Price : 25.00 Evaluated at bid price : 27.26 Bid-YTW : 3.03 % |
| SLF.PR.C | Deemed-Retractible | -1.82 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 20.47 Bid-YTW : 6.99 % |
| TD.PR.R | Deemed-Retractible | -1.72 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2015-04-30 Maturity Price : 25.50 Evaluated at bid price : 26.29 Bid-YTW : 4.86 % |
| GWO.PR.M | Deemed-Retractible | -1.49 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2019-03-31 Maturity Price : 25.00 Evaluated at bid price : 25.12 Bid-YTW : 5.77 % |
| BAM.PR.J | OpRet | -1.47 % | YTW SCENARIO Maturity Type : Soft Maturity Maturity Date : 2018-03-30 Maturity Price : 25.00 Evaluated at bid price : 26.11 Bid-YTW : 4.64 % |
| PWF.PR.F | Perpetual-Discount | -1.40 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2041-10-04 Maturity Price : 24.34 Evaluated at bid price : 24.65 Bid-YTW : 5.41 % |
| HSB.PR.E | FixedReset | -1.40 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2014-06-30 Maturity Price : 25.00 Evaluated at bid price : 26.10 Bid-YTW : 4.94 % |
| IGM.PR.B | Perpetual-Premium | -1.37 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2018-12-31 Maturity Price : 25.00 Evaluated at bid price : 25.15 Bid-YTW : 5.76 % |
| SLF.PR.F | FixedReset | -1.32 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2014-06-30 Maturity Price : 25.00 Evaluated at bid price : 26.25 Bid-YTW : 4.11 % |
| SLF.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 : 20.55 Bid-YTW : 6.94 % |
| MFC.PR.F | FixedReset | -1.21 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.51 Bid-YTW : 3.73 % |
| FTS.PR.F | Perpetual-Discount | -1.18 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2041-10-04 Maturity Price : 24.07 Evaluated at bid price : 24.36 Bid-YTW : 5.07 % |
| BMO.PR.Q | FixedReset | -1.15 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.90 Bid-YTW : 3.32 % |
| RY.PR.A | Deemed-Retractible | -1.12 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.79 Bid-YTW : 4.64 % |
| BAM.PR.N | Perpetual-Discount | -1.11 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2041-10-04 Maturity Price : 21.42 Evaluated at bid price : 21.42 Bid-YTW : 5.59 % |
| MFC.PR.D | FixedReset | -1.07 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2014-06-19 Maturity Price : 25.00 Evaluated at bid price : 25.81 Bid-YTW : 5.46 % |
| PWF.PR.E | Perpetual-Discount | -1.04 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2041-10-04 Maturity Price : 24.39 Evaluated at bid price : 24.69 Bid-YTW : 5.66 % |
| BMO.PR.J | Deemed-Retractible | -1.04 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.86 Bid-YTW : 4.65 % |
| SLF.PR.A | Deemed-Retractible | -1.03 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.10 Bid-YTW : 6.34 % |
| SLF.PR.H | FixedReset | -1.02 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.30 Bid-YTW : 4.14 % |
| RY.PR.F | Deemed-Retractible | -1.00 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.70 Bid-YTW : 4.68 % |
| BNS.PR.O | Deemed-Retractible | 1.54 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2013-04-26 Maturity Price : 26.00 Evaluated at bid price : 26.40 Bid-YTW : 4.10 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| ENB.PR.B | FixedReset | 121,775 | Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2041-10-04 Maturity Price : 23.16 Evaluated at bid price : 25.10 Bid-YTW : 3.68 % |
| TRP.PR.B | FixedReset | 61,987 | RBC crossed 40,000 at 25.00. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2041-10-04 Maturity Price : 23.27 Evaluated at bid price : 24.99 Bid-YTW : 2.72 % |
| TRP.PR.C | FixedReset | 44,479 | RBC crossed 40,000 at 25.20. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2041-10-04 Maturity Price : 23.25 Evaluated at bid price : 25.10 Bid-YTW : 3.02 % |
| RY.PR.W | Perpetual-Discount | 34,978 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2041-10-04 Maturity Price : 24.38 Evaluated at bid price : 24.72 Bid-YTW : 5.00 % |
| NA.PR.O | FixedReset | 34,225 | Nesbitt crossed 28,700 at 27.50. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-02-15 Maturity Price : 25.00 Evaluated at bid price : 27.26 Bid-YTW : 3.03 % |
| RY.PR.D | Deemed-Retractible | 33,460 | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.87 Bid-YTW : 4.65 % |
| There were 24 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| GWO.PR.N | FixedReset | Quote: 23.01 – 23.85 Spot Rate : 0.8400 Average : 0.4832 YTW SCENARIO |
| TCA.PR.Y | Perpetual-Premium | Quote: 50.97 – 51.69 Spot Rate : 0.7200 Average : 0.4876 YTW SCENARIO |
| TD.PR.R | Deemed-Retractible | Quote: 26.29 – 26.76 Spot Rate : 0.4700 Average : 0.2870 YTW SCENARIO |
| GWO.PR.M | Deemed-Retractible | Quote: 25.12 – 25.79 Spot Rate : 0.6700 Average : 0.5131 YTW SCENARIO |
| PWF.PR.E | Perpetual-Discount | Quote: 24.69 – 25.10 Spot Rate : 0.4100 Average : 0.2645 YTW SCENARIO |
| FTS.PR.F | Perpetual-Discount | Quote: 24.36 – 25.00 Spot Rate : 0.6400 Average : 0.4980 YTW SCENARIO |