Greece claims to have reached agreement:
“Discussions between the Greek government and the troika were successfully completed this morning,” Greek Prime Minister Lucas Papademos’s office said in an e-mailed statement today in Athens. “Political leaders have agreed with the result of those negotiations. Therefore there is a general agreement in the context of the new program ahead of tonight’s euro group meeting.” The statement didn’t include any details.
But PIMCO notes potential resistance of Greeks:
“It is very unlikely to lead to growth, jobs, financial stability and new investments,” El-Erian, chief executive and co-chief investment officer of the world’s biggest manager of bond funds, said in a radio interview today on “Bloomberg Surveillance” with Tom Keene and Ken Prewitt. “This agreement will be very difficult to sell when the principals, those who have agreed, have to go to their constituents.”
The question on my mind is still: will Greek politicians sell the deal to Greek voters? I supported the idea of a referendum when the idea was floated – very briefly! – last fall. We continue to live in interesting times.
Meanwhile, the guys with the money say “Show me!”:
European finance chiefs are set to defer ratifying a 130 billion-euro ($173 billion) rescue for Greece, pressing the government in Athens to put a newly struck austerity plan into action.
“It’s up to the Greek government by concrete actions — through legislation, other actions — to convince its European partners that the second program can be made to work,” European Union Economic and Monetary Affairs Commissioner Olli Rehn said today as he arrived for an emergency meeting of euro-area finance ministers in Brussels.
And how many stories like this are we going to see?
Greek doctors are fighting a new invisible foe every day at their hospitals: a pneumonia-causing superbug that most existing antibiotics can’t kill.
The culprit is spreading through health centers already weighed down by a shortage of nurses. The hospital-acquired germ killed as many as half of people with blood cancers infected at Laiko General Hospital, a 500-bed facility in central Athens.
The drug-resistant K. pneumoniae bacteria have a genetic mutation that allows them to evade such powerful drugs as AstraZeneca Plc (AZN)’s Merrem and Johnson & Johnson’s Doribax. A 2010 survey found 49 percent of K. pneumoniae samples in Greece aren’t killed by the antibiotics of last resort, known as carbapenems, according to the European Antimicrobial Resistance Surveillance Network. Many doctors have even tried colistin, a 50-year-old drug so potent that it can damage kidneys.
“We’re not used to seeing people die of an untreatable infection,” said John Rex, vice president for clinical infection at London-based AstraZeneca, which is developing a new generation of antibiotics. “That’s like something in a novel of 200 years ago.”
The Bank of Canada has provided another nail in the coffin of Efficient Market Theory:
This paper develops and estimates a model to explain the behaviour of house prices in the United States. The main finding is that over 70% of the increase in house prices relative to trend during the increase of house prices in the United States from 1995 to 2006 can be explained by a pricing mechanism where market participants are ‘Fooled by Search.’ Trading frictions, also known as search frictions, have been argued to affect asset prices, so that asset markets are constrained efficient, with shocks to liquidity causing prices to temporarily deviate from long run fundamentals. In this paper a model is proposed and estimated that combines search frictions with a behavioural assumption where market participants incorrectly believe that the efficient market theory holds. In other words, households are ‘Fooled by Search.’ Such a model is potentially fruitful because it can replicate the observation that real price growth and turnover are highly correlated at an annual frequency in the United States housing market. A linearized version of the model is estimated using standard OLS and annual data. In addition to explaining over 70% of the housing bubble in the United States, the model also predicts and estimation confirms that in regions with a low elasticity of supply, price growth should be more sensitive to turnover. Using the lens of turnover, a supply shock is identified and estimated that has been responsible for over 80% of the fall in real house prices from the peak in 2006 to 2010.
This paper examines the impact of bank consolidation on mortgage rates in order to evaluate the extent to which mortgage markets are competitive. Mortgage markets are decentralized and so rates are determined through a search and negotiation process. The primary effect of a merger therefore is to reduce the number of partners available with whom to negotiate, although it can also change the characteristics of the product, and impact the search effort of consumers. Using a Canadian merger as a case study, we find that, overall, consolidation had little effect on rates suggesting that, on average, the mortgage market is fairly competitive. However, a decomposition of the aggregate treatment effect reveals important heterogeneity in the impact of the merger. We find that consumers gathering multiple quotes are affected by the merger, while those who do not search are not. These results suggest that market power originates in large part from the presence of asymmetric search costs.
Woo-Hoo, we’re saved! The CSA is bringing in new Money Market Fund regulations:
Canadian securities regulators have slapped new rules on money market funds in a move that could push already puny yields on these investments even lower.
Under the new regulations, these funds, which typically pay investors around 1 per cent a year, will need to hold at least five per cent of their assets in cash or in securities that can easily be converted into cash within a day. In addition, they must hold at least another 15 per cent of their assets in securities that can be converted within a week.
As I have pointed out until I’m sick to bloody death of saying it, the problem is not liquidity (although that can become a factor in an extreme case, just like any other extreme case) the problem is credit quality – and these rules do absolutely nothing to improve credit quality, which requires mandatory support from the sponsor. But why would a regulator worry about what might actually work?
It was a weak day for the Canadian preferred share market, with PerpetualPremiums down 8bp, FixedResets off 12bp and DeemedRetractibles losing 20bp. Volatility was average, skewed to the downside. 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 | 1.0259 % | 2,462.8 |
| FixedFloater | 4.58 % | 3.94 % | 39,741 | 17.43 | 1 | -1.1905 % | 3,405.9 |
| Floater | 2.71 % | 2.96 % | 63,663 | 19.80 | 3 | 1.0259 % | 2,659.1 |
| OpRet | 4.82 % | -1.13 % | 65,615 | 1.27 | 6 | -0.3331 % | 2,522.9 |
| SplitShare | 5.28 % | -0.40 % | 80,670 | 0.83 | 4 | 0.2945 % | 2,651.8 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.3331 % | 2,307.0 |
| Perpetual-Premium | 5.31 % | -3.74 % | 109,618 | 0.09 | 26 | -0.0766 % | 2,230.8 |
| Perpetual-Discount | 5.02 % | 4.84 % | 196,708 | 15.69 | 4 | 0.0205 % | 2,462.6 |
| FixedReset | 5.01 % | 2.60 % | 217,262 | 2.30 | 65 | -0.1234 % | 2,397.9 |
| Deemed-Retractible | 4.87 % | 2.28 % | 224,056 | 1.19 | 45 | -0.1979 % | 2,328.5 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| FTS.PR.H | FixedReset | -1.51 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2042-02-09 Maturity Price : 23.66 Evaluated at bid price : 26.10 Bid-YTW : 2.72 % |
| BAM.PR.G | FixedFloater | -1.19 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2042-02-09 Maturity Price : 21.70 Evaluated at bid price : 20.75 Bid-YTW : 3.94 % |
| CIU.PR.A | Perpetual-Premium | -1.10 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2016-06-01 Maturity Price : 25.00 Evaluated at bid price : 25.22 Bid-YTW : 4.33 % |
| FTS.PR.C | OpRet | -1.03 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2012-03-10 Maturity Price : 25.50 Evaluated at bid price : 26.00 Bid-YTW : -5.85 % |
| BNS.PR.J | Deemed-Retractible | -1.01 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2013-10-29 Maturity Price : 25.00 Evaluated at bid price : 26.38 Bid-YTW : 2.06 % |
| ELF.PR.F | Perpetual-Discount | 1.18 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2042-02-09 Maturity Price : 24.56 Evaluated at bid price : 24.79 Bid-YTW : 5.39 % |
| PWF.PR.A | Floater | 2.27 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2042-02-09 Maturity Price : 22.22 Evaluated at bid price : 22.50 Bid-YTW : 2.30 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| ENB.PR.F | FixedReset | 85,884 | Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2042-02-09 Maturity Price : 23.23 Evaluated at bid price : 25.43 Bid-YTW : 3.70 % |
| PWF.PR.P | FixedReset | 70,251 | Nesbitt crossed 60,000 at 25.90. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2042-02-09 Maturity Price : 23.52 Evaluated at bid price : 25.90 Bid-YTW : 2.91 % |
| PWF.PR.M | FixedReset | 66,301 | Nesbitt crossed 65,000 at 26.65. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-01-31 Maturity Price : 25.00 Evaluated at bid price : 26.61 Bid-YTW : 2.72 % |
| PWF.PR.F | Perpetual-Premium | 65,196 | RBC crossed a block of 39,700 and two of 10,300 each, all at 25.40. YTW SCENARIO Maturity Type : Call Maturity Date : 2012-03-10 Maturity Price : 25.00 Evaluated at bid price : 25.40 Bid-YTW : -12.30 % |
| BNS.PR.Z | FixedReset | 56,140 | Anonymous bought two blocks of 10,000 each from RBC at 25.17 and one block of 10,600 from Nesbitt at 25.19. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.15 Bid-YTW : 3.07 % |
| RY.PR.Y | FixedReset | 43,661 | RBC crossed 39,400 at 27.35. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-11-24 Maturity Price : 25.00 Evaluated at bid price : 27.32 Bid-YTW : 2.57 % |
| There were 33 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| FTS.PR.H | FixedReset | Quote: 26.10 – 26.47 Spot Rate : 0.3700 Average : 0.2555 YTW SCENARIO |
| FTS.PR.C | OpRet | Quote: 26.00 – 26.30 Spot Rate : 0.3000 Average : 0.1898 YTW SCENARIO |
| RY.PR.H | Deemed-Retractible | Quote: 27.16 – 27.45 Spot Rate : 0.2900 Average : 0.1973 YTW SCENARIO |
| CIU.PR.A | Perpetual-Premium | Quote: 25.22 – 25.49 Spot Rate : 0.2700 Average : 0.1999 YTW SCENARIO |
| BNA.PR.D | SplitShare | Quote: 26.65 – 26.91 Spot Rate : 0.2600 Average : 0.1930 YTW SCENARIO |
| FTS.PR.F | Perpetual-Premium | Quote: 25.55 – 25.84 Spot Rate : 0.2900 Average : 0.2270 YTW SCENARIO |