Greece got a a little closer to default:
Greece’s creditor banks broke off talks after failing to agree with the government about how much money investors will lose by swapping their bonds, increasing the risk of the euro-area’s first sovereign default.
Proposals by a committee representing financial firms haven’t produced a “constructive consolidated response by all parties,” the Washington-based Institute of International Finance said in a statement today. Talks with Greece and the official sector are “paused for reflection on the benefits of a voluntary approach,” the group said.
Greek officials and the nation’s creditors agreed in October to implement a 50 percent cut in the face value of Greek debt, with a goal of reducing Greece’s borrowings to 120 percent of gross domestic product by 2020. More than two months after the accord was announced, the two sides still need to agree on the coupon and maturity of the new bonds to determine losses for investors. The IIF has aimed to implement the swap this month.
The entire idea of a voluntary and partial restructuring is hoplessly insane. Let’s hope that this ends with a lot of egg on Merkozy’s face.
Certainly indications are that the politicians have blown it:
France’s AAA rating will fall by one level at S&P, Finance Minister Francois Baroin told France 2 television today. Slovakia, Italy and Austria are among other countries to be downgraded, European officials said. Germany will keep its top rating, a person familiar with the matter said. S&P may release its report later today.
The decisions came at the end of a week in which signs grew that Europe’s woes may be cresting as borrowing costs fell, evidence of economic resilience emerged and the European Central Bank said it had quelled a credit crunch at banks. The immediate impact on French and Italian borrowing costs was limited, with the yield on 10-year government bonds rising 3 basis points and 1 basis point, respectively.
“It’s a reduction of one level, it’s the same level as the U.S.,” Baroin said. “It’s not a catastrophe.”
France was not alone:
France and Austria lost their top credit ratings in a string of downgrades that left Germany with the euro area’s only stable AAA grade as Standard & Poor’s warned that crisis-fighting efforts are still falling short.
France and Austria were cut one level to AA+ from AAA and face the risk of further reductions, the rating company said in Frankfurt late yesterday. While Finland, the Netherlands and Luxembourg kept their AAA ratings, they were put on negative watch. Spain and Italy were also among the nine nations downgraded. The first gauge of the report’s impact will come in two days when France sells as much as 8.7 billion euros ($11 billion) in bills.
“In our view, the policy initiatives taken by European policy makers in recent weeks may be insufficient to fully address ongoing systemic stresses in the euro zone,” S&P said in a statement.
Dimon had some observations on the ECB’s funding initiative:
“It eliminates bank liquidity or funding problems for at least the next year, that’s a pretty powerful statement,” Dimon said today after his company reported a drop in fourth-quarter net income. “That was the biggest single risk of an uncontrollable surprise right there, so if that’s taken off the table, that’s a good thing.”
…
Banks in Europe are still shedding so-called risk-weighted assets, or RWAs, because regulators are requiring them to increase their ratios of equity capital to RWAs, Dimon said.“They’re still reducing RWA by not rolling things over, you can see them selling aircraft loans, trade finance, they’re not participating as much in revolvers, there are certain conduits they’re not doing anymore,” Dimon said. “But that’s now just to create capital, not because they have a funding problem.”
It was a relatively quiet day for the Canadian preferred share market, with PerpetualDiscounts up 4bp, FixedResets down 2bp and DeemedRetractibles losing 9bp. Volatility was low, with SLF FixedResets doing a bit of catch-up. 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 | 0.6623 % | 2,314.1 |
| FixedFloater | 4.76 % | 4.12 % | 41,906 | 17.20 | 1 | -0.1500 % | 3,277.9 |
| Floater | 2.88 % | 3.04 % | 66,773 | 19.65 | 3 | 0.6623 % | 2,498.6 |
| OpRet | 4.96 % | 1.56 % | 65,344 | 1.34 | 7 | -0.2958 % | 2,491.9 |
| SplitShare | 5.37 % | 0.90 % | 67,232 | 0.90 | 4 | 0.3102 % | 2,602.9 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.2958 % | 2,278.6 |
| Perpetual-Premium | 5.43 % | -2.76 % | 85,850 | 0.09 | 23 | 0.0059 % | 2,203.0 |
| Perpetual-Discount | 5.05 % | 4.90 % | 146,422 | 15.57 | 7 | 0.0355 % | 2,401.1 |
| FixedReset | 5.06 % | 2.76 % | 207,564 | 2.39 | 64 | -0.0202 % | 2,376.5 |
| Deemed-Retractible | 4.93 % | 3.56 % | 196,137 | 1.86 | 46 | -0.0876 % | 2,288.9 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| W.PR.H | Perpetual-Premium | -1.28 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2013-01-15 Maturity Price : 25.00 Evaluated at bid price : 25.52 Bid-YTW : 3.37 % |
| FTS.PR.C | OpRet | -1.11 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2012-02-12 Maturity Price : 25.50 Evaluated at bid price : 25.90 Bid-YTW : -5.93 % |
| SLF.PR.H | FixedReset | 1.39 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.00 Bid-YTW : 4.19 % |
| SLF.PR.G | FixedReset | 1.83 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.87 Bid-YTW : 3.86 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| HSE.PR.A | FixedReset | 381,337 | RBC crossed 125,000 at 25.97. Desjardins crossed blocks of 175,000 and 50,000 at 25.95 and RBC bought 19,300 from anonymous at the same price. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2042-01-13 Maturity Price : 23.51 Evaluated at bid price : 25.94 Bid-YTW : 2.96 % |
| HSB.PR.E | FixedReset | 144,440 | RBC crossed 136,000 at 27.25. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-06-30 Maturity Price : 25.00 Evaluated at bid price : 27.15 Bid-YTW : 3.07 % |
| RY.PR.I | FixedReset | 134,540 | RBC crossed 117,500 at 26.15. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-02-24 Maturity Price : 25.00 Evaluated at bid price : 26.21 Bid-YTW : 2.97 % |
| BNS.PR.N | Deemed-Retractible | 132,759 | TD crossed 126,700 at 26.70. YTW SCENARIO Maturity Type : Call Maturity Date : 2013-01-29 Maturity Price : 26.00 Evaluated at bid price : 26.71 Bid-YTW : 2.15 % |
| SLF.PR.B | Deemed-Retractible | 127,465 | RBC crossed 115,400 at 23.20. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.27 Bid-YTW : 5.77 % |
| SLF.PR.H | FixedReset | 113,963 | RBC crossed 102,000 at 24.10. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.00 Bid-YTW : 4.19 % |
| There were 37 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| GWO.PR.I | Deemed-Retractible | Quote: 23.60 – 23.98 Spot Rate : 0.3800 Average : 0.2343 YTW SCENARIO |
| W.PR.H | Perpetual-Premium | Quote: 25.52 – 25.90 Spot Rate : 0.3800 Average : 0.2696 YTW SCENARIO |
| PWF.PR.O | Perpetual-Premium | Quote: 26.60 – 27.00 Spot Rate : 0.4000 Average : 0.2974 YTW SCENARIO |
| SLF.PR.I | FixedReset | Quote: 24.53 – 24.79 Spot Rate : 0.2600 Average : 0.1669 YTW SCENARIO |
| PWF.PR.H | Perpetual-Premium | Quote: 25.55 – 25.84 Spot Rate : 0.2900 Average : 0.2014 YTW SCENARIO |
| PWF.PR.A | Floater | Quote: 20.16 – 20.91 Spot Rate : 0.7500 Average : 0.6707 YTW SCENARIO |