There was lots of fun with European bonds today:
German two-year rates dropped below 0.3 percent for the first time, while the extra yield investors demand to hold 10- year bonds from France, Belgium, Spain and Austria instead of bunds all climbed to euro-era records. Italy’s 10-year yield rose above 7 percent as prime minister-in-waiting Mario Monti wrapped up talks on forming a new government. Spain and Belgium sold less than the maximum target of bills at auctions today as financing costs increased.
Italy’s 10-year yield climbed 37 basis points, or 0.37 percentage point, to 7.07 percent at 5 p.m. in London. It rose to a euro-era record 7.48 percent on Nov. 9. The 4.75 percent bond due September 2021 slid 2.285, or 22.85 euros per 1,000- euro face amount ($1,351), to 84.57.
The spread investors demand to hold 10-year French debt instead of German bunds widened 26 basis points, the most since the euro started in 1999, based on closing-market rates, to 190 basis points. It touched 191 basis points, also the most since the common currency was introduced. The yield on the 10-year bund fell one basis point to 1.77 percent, less than half France’s 3.67 percent rate.
Meanwhile, here’s a little colour to support my support for a Greek referendum:
One of the biggest uncertainties for Greek-Canadian business owners has been the disruption brought on by a series of strikes. Panagiotis Tsiriotakis imports olive oil from his family’s land in Crete, bottles it and sells it to Canadian retailers. He notes that every day, a different group goes on strike in Greece, from trucking to customs to the ports. “Then the ships don’t even go into port to collect it,” he said. “Nothing is stable right now.”
What used to take a few weeks to cross the oceans can now be up to two months. Inventories in his Toronto warehouse have dwindled and he’s worried he won’t be able to keep up with demand.
The travel business is also seeing disruptions. Aris Sideratos, founder and owner of Skyway Tours Ltd. in Toronto’s Greektown, said that demand for vacation packages in Greece has slid 30 per cent from last year and that some non-Greek tourists have avoided the country because they’re afraid of strikes and riots.
It will be just lovely if the Greek government organizes acceptance of the bail-out funds. But will the Greek populace be willing to aquiesce to the terms of repayment?
Sino-Forest got some good news:
The committee said in an interim report that it obtained information from Chinese forestry bureaus verifying 77 percent of Sino-Forest’s reported timber assets. It also said it confirmed the Mississauga, Ontario- and Hong Kong-based company’s cash balance.
While Sino-Forest has been suspended from trading since August, shares of its Greenheart Group Ltd. unit soared 93 percent yesterday in Hong Kong after publication of the report. Sino-Forest’s 10.25 percent bonds, which mature in 2014, gained 24.75 cents on the dollar to 62 cents as of 4:30 p.m. in Toronto yesterday, according to Trace, the bond price reporting system of the Financial Industry Regulatory. The 6.25 percent bonds due October 2017 rose as much as 27.45 cents to 60 cents.
Richard Fisher of the Dallas Fed made an important speech titled Taming the Too-Big-to-Fails: Will Dodd–Frank Be the Ticket or Is Lap-Band Surgery Required? (With Reference to Vinny Guadagnino, Andrew Haldane, Paul Volcker, John Milton, Tom Hoenig and Churchill’s ‘Terminological Inexactitude’) (clearly, Mr. Fisher takes great pleasure in titling his speeches):
return to Andrew Haldane of the Bank of England. Haldane makes an intriguing parallel between the financial system and epidemiological networks. Conventional capital requirements seek to equalize failure probabilities across institutions to a certain threshold, say 0.1 percent. But using a systemwide approach would result in a different calibration, if the objective were to set a firm’s capital requirements equal to the marginal cost of its failure to the system as a whole. Regulatory capital requirements would then be higher for banks posing the greatest risk to the system, which is what Dodd–Frank proposes, and what the current Basel III requirements are also considering.
To Haldane, this is a new approach in banking, but not in epidemiology where “focusing preventive action on ‘super-spreaders’ within the network to limit the potential for systemwide spread” is the norm. As Haldane emphasizes, “If anything, this same logic applies with even greater force in banking.”[17] To me, treating too-big-to-fail institutions as potential “super-spreaders” of financial germs has a great deal of appeal.
…
Yet, in my view, there is only one fail-safe way to deal with too big to fail. I believe that too-big-to-fail banks are too-dangerous-to-permit.[26] As Mervyn King, head of the Bank of England, once said, “If some banks are thought to be too big to fail, then … they are too big.” I favor an international accord that would break up these institutions into more manageable size. More manageable not only for regulators, but also for the executives of these institutions. For there is scant chance that managers of $1 trillion or $2 trillion banking enterprises can possibly “know their customer,” follow time-honored principles of banking and fashion reliable risk management models for organizations as complex as these megabanks have become.Am I too radical? I think not. I find myself in good company―Paul Volcker, for example, advocates “reducing their size, curtailing their interconnectedness, or limiting their activities.”[27]
In my view, downsizing the behemoths over time into institutions that can be prudently managed and regulated across borders is the appropriate policy response. Then, creative destruction can work its wonders in the financial sector, just as it does elsewhere in our economy.
We shouldn’t just pay lip service to letting the discipline of the market work. Ideally, we should rely on market forces to work not only in good times, but also in times of difficulties. Ultimately, we should move to end too big to fail and the apparatus of bailouts and do so well before bankers lose their memory of the recent crisis and embark on another round of excessive risk taking. Only then will we have a financial system fit and proper for servicing an economy as dynamic as that of the United States.
Premier Charest stated today that single mums seeking to buy milk for their children are not represented by any government he has anything to do with:
There is now speculation the Canadian government might come under pressure to dismantle the system in negotiations for a trans-Pacific trade zone.
Not so fast, Mr. Charest said Tuesday.
He says supply management has not been on the table during ongoing Canada-European Union trade talks, nor should it be during the upcoming Trans Pacific Partnership negotiations.
He says the place to have a broad conversation about agriculture programs is at the global level, at the World Trade Organization. He said the same applies to other countries’ agriculture subsidies.
“The supply-management system is non-negotiable,” he told reporters, speaking about the trans-Pacific trade talks.
…
Canadians pay two to three times more than world market prices for products like milk, butter, cheese and eggs, according to the Organization for Economic Co-operation and Development.
Let them drink Coke!
I think there must be something going on behind the scenes at Atlantic Power / CPI Preferred Equity with respect to the ratings on CZP.PR.A & CZP.PR.B. The takeover closed two weeks ago, after DBRS had warned of a massive downgrade … and nothing’s happening. Perhaps ATP is frantically trying to put some kind of deal together? We shall see!
It was a mildly downish day for the Canadian preferred share market, with PerpetualDiscounts up 1bp, FixedResets down 7bp and DeemedRetractibles losing 8bp. Volatility was mild. Volume was 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 | 0.5838 % | 2,124.9 |
| FixedFloater | 4.83 % | 4.55 % | 28,819 | 17.22 | 1 | -0.7576 % | 3,187.5 |
| Floater | 3.39 % | 3.40 % | 157,624 | 18.70 | 2 | 0.5838 % | 2,294.3 |
| OpRet | 4.94 % | 2.38 % | 53,213 | 1.50 | 7 | 0.3459 % | 2,489.7 |
| SplitShare | 5.75 % | 6.53 % | 58,427 | 5.12 | 3 | -0.0280 % | 2,514.0 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.3459 % | 2,276.6 |
| Perpetual-Premium | 5.57 % | -0.12 % | 100,600 | 0.14 | 13 | 0.1020 % | 2,158.4 |
| Perpetual-Discount | 5.31 % | 5.21 % | 106,687 | 14.78 | 17 | 0.0121 % | 2,296.5 |
| FixedReset | 5.10 % | 2.93 % | 222,904 | 2.50 | 63 | -0.0732 % | 2,348.6 |
| Deemed-Retractible | 5.03 % | 4.40 % | 213,798 | 3.66 | 46 | -0.0764 % | 2,222.3 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| BAM.PR.N | Perpetual-Discount | -1.53 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2041-11-15 Maturity Price : 22.80 Evaluated at bid price : 23.20 Bid-YTW : 5.17 % |
| BAM.PR.M | Perpetual-Discount | -1.24 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2041-11-15 Maturity Price : 22.66 Evaluated at bid price : 23.04 Bid-YTW : 5.21 % |
| IAG.PR.A | Deemed-Retractible | -1.20 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.04 Bid-YTW : 5.73 % |
| BAM.PR.O | OpRet | 1.44 % | YTW SCENARIO Maturity Type : Option Certainty Maturity Date : 2013-06-30 Maturity Price : 25.00 Evaluated at bid price : 26.00 Bid-YTW : 2.88 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| TD.PR.Q | Deemed-Retractible | 239,740 | Block traders gone wild! Scotia crossed blocks of 50,000 shares, 25,000 and 24,200. RBC crossed 25,000. TD crossed blocks of 50,000 shares, 20,000 and 30,000. All blocks crossed at 26.60. YTW SCENARIO Maturity Type : Call Maturity Date : 2013-01-31 Maturity Price : 26.00 Evaluated at bid price : 26.61 Bid-YTW : 3.58 % |
| TD.PR.I | FixedReset | 109,725 | Nesbitt crossed 100,000 at 27.45. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-07-31 Maturity Price : 25.00 Evaluated at bid price : 27.45 Bid-YTW : 2.60 % |
| TD.PR.E | FixedReset | 84,850 | TD crossed blocks of 29,600 and 25,000, both at 27.30; RBC crossed 10,000 at 27.30 and another 10,000 at 27.28. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-04-30 Maturity Price : 25.00 Evaluated at bid price : 27.28 Bid-YTW : 2.51 % |
| BNS.PR.N | Deemed-Retractible | 77,055 | Desjardins crossed 25,000 at 26.37. YTW SCENARIO Maturity Type : Call Maturity Date : 2013-01-29 Maturity Price : 26.00 Evaluated at bid price : 26.36 Bid-YTW : 4.04 % |
| TD.PR.Y | FixedReset | 64,925 | Nesbitt crossed 60,000 at 26.30. YTW SCENARIO Maturity Type : Call Maturity Date : 2013-10-31 Maturity Price : 25.00 Evaluated at bid price : 26.20 Bid-YTW : 2.69 % |
| SLF.PR.I | FixedReset | 64,740 | Recent new issue. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-12-31 Maturity Price : 25.00 Evaluated at bid price : 24.70 Bid-YTW : 4.36 % |
| There were 32 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| PWF.PR.E | Perpetual-Discount | Quote: 25.22 – 25.67 Spot Rate : 0.4500 Average : 0.2909 YTW SCENARIO |
| BMO.PR.M | FixedReset | Quote: 26.07 – 26.42 Spot Rate : 0.3500 Average : 0.2417 YTW SCENARIO |
| HSB.PR.C | Deemed-Retractible | Quote: 25.50 – 25.87 Spot Rate : 0.3700 Average : 0.2670 YTW SCENARIO |
| IAG.PR.A | Deemed-Retractible | Quote: 23.04 – 23.38 Spot Rate : 0.3400 Average : 0.2672 YTW SCENARIO |
| BAM.PR.G | FixedFloater | Quote: 19.65 – 20.00 Spot Rate : 0.3500 Average : 0.2784 YTW SCENARIO |
| BMO.PR.O | FixedReset | Quote: 27.43 – 27.65 Spot Rate : 0.2200 Average : 0.1489 YTW SCENARIO |
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