There’s a dilemma the politicians are having a problem with: how can you square long-term lending risk with zero short term lender risk? The Europeans are trying hard!
European Union lawmakers are considering rules to protect bank depositors that may stymie two of the main funding sources for the region’s lenders.
The proposals risk limiting how much banks can raise from covered bond sales and European Central Bank loans by placing curbs on the assets they can use for security. The aim is to boost protection for account holders and other creditors.
…
Tying up assets in collateralized fundraisings is known as encumbrance and pushes unsecured creditors further back in the queue for payment in a default. Any move to limit secured debt issuance risks hurting banks that have relied on record covered bond sales and the 1 trillion euros ($1.3 trillion) of loans that the ECB has pumped into the system since December.
But getting too cocky about Anglo-Saxon capitalism, remember US efforts to eliminate liquidity:
Wall Street banks will have two years to implement the so-called Volcker rule so long as they make a “good faith” effort to comply with the ban on proprietary trading, U.S. regulators said.
Banks will have the “full two-year period” provided by the Dodd-Frank financial overhaul law to “fully conform” their activities and investments, the Federal Reserve and four other U.S. agencies said in a statement today. The Fed has the authority to extend the period of compliance beyond July 21, 2014, the regulators said.
France and Spain paid up for funding:
France sold 8 billion euros ($10.5 billion) in debt today as risks linked to the French presidential election drove up yields.
The amount sold was at the maximum target set by Agence France Tresor, the country’s debt-management body. France sold 2.7 billion euros of benchmark five-year debt at an average yield of 1.83 percent, up from 1.78 percent on March 15.
Earlier today, Spain sold 2.54 billion euros in two- and 10-year bonds, slightly more than the maximum target of 2.5 billion euros. Borrowing costs rose as Spanish Prime Minister Mariano Rajoy’s struggles to meet deficit targets.
Scrutiny of both countries is increasing amid the fading effect of the European Central Bank’s longer-term refinancing operation, which injected about 1 trillion euros of liquidity into the region’s financial system. The yield on Spain’s benchmark 10-year bond has jumped about 1 percentage point since the beginning of March to above 6 percent, while the yield on the equivalent French debt has gained more than 10 basis points with Socialist Francois Hollande leading in election polls.
It would seem that the bond market shaves the Spanish barber:
Spain sold 2.54 billion euros ($3.3 billion) of bonds, just above the maximum target for the auction, and its borrowing costs rose. Bonds declined after the sale.
The Treasury sold its 10-year benchmark bond at an average yield of 5.743 percent, compared with 5.789 percent on the secondary market before the sale and 5.403 percent when it last sold them in January. It sold two-year securities at 3.463 percent.
It was a quiet day overall for the Canadian preferred share market, with PerpetualPremiums gaining 7bp, FixedResets up 3bp and DeemedRetractibles off 2bp. Oddly, there was a violent move in the PerpetualDiscount sector – the Performance Highlights table is comprised entirely of three losers of this ilk. However, these three issues were responsible for the entire PerpetualDiscount index move. Volume was below average.
| HIMIPref™ Preferred Indices These values reflect the December 2008 revision of the HIMIPref™ Indices Values are provisional and are finalized monthly |
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| 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 | 0.1530 % | 2,400.7 |
| FixedFloater | 4.38 % | 3.73 % | 34,226 | 17.90 | 1 | -0.9132 % | 3,601.0 |
| Floater | 3.01 % | 3.02 % | 43,761 | 19.68 | 3 | 0.1530 % | 2,592.1 |
| OpRet | 4.75 % | 2.85 % | 44,941 | 1.16 | 5 | 0.0612 % | 2,512.1 |
| SplitShare | 5.26 % | -4.01 % | 83,352 | 0.66 | 4 | -0.0099 % | 2,689.2 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.0612 % | 2,297.1 |
| Perpetual-Premium | 5.46 % | 0.50 % | 83,208 | 0.12 | 23 | 0.0739 % | 2,224.2 |
| Perpetual-Discount | 5.21 % | 5.25 % | 144,713 | 15.04 | 10 | -0.7025 % | 2,396.2 |
| FixedReset | 5.01 % | 2.99 % | 188,403 | 2.17 | 67 | 0.0320 % | 2,399.9 |
| Deemed-Retractible | 4.96 % | 3.79 % | 200,619 | 2.86 | 46 | -0.0248 % | 2,309.4 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| BAM.PR.M | Perpetual-Discount | -3.08 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2042-04-19 Maturity Price : 22.05 Evaluated at bid price : 22.31 Bid-YTW : 5.36 % |
| ELF.PR.G | Perpetual-Discount | -2.69 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2042-04-19 Maturity Price : 21.78 Evaluated at bid price : 22.09 Bid-YTW : 5.39 % |
| BAM.PR.N | Perpetual-Discount | -1.17 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2042-04-19 Maturity Price : 22.42 Evaluated at bid price : 22.76 Bid-YTW : 5.25 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| CM.PR.M | FixedReset | 206,300 | Nesbitt crossed one block of 100,000 shares and two of 50,000 each, all at 27.25. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-07-31 Maturity Price : 25.00 Evaluated at bid price : 27.20 Bid-YTW : 2.45 % |
| PWF.PR.R | Perpetual-Premium | 171,950 | Nesbitt crossed 60,000 at 25.90; Desjardins crossed three blocks, of 10,000 shares, 15,000 and 75,000, all at the same price. YTW SCENARIO Maturity Type : Call Maturity Date : 2021-04-30 Maturity Price : 25.00 Evaluated at bid price : 25.85 Bid-YTW : 5.04 % |
| CM.PR.J | Deemed-Retractible | 143,566 | Called for redemption. YTW SCENARIO Maturity Type : Call Maturity Date : 2013-04-30 Maturity Price : 25.75 Evaluated at bid price : 25.98 Bid-YTW : 3.35 % |
| SLF.PR.H | FixedReset | 90,061 | Nesbitt crossed 50,000 at 24.50; RBC crossed 35,000 at the same price. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.51 Bid-YTW : 4.06 % |
| ENB.PR.H | FixedReset | 72,121 | Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2042-04-19 Maturity Price : 23.21 Evaluated at bid price : 25.35 Bid-YTW : 3.54 % |
| ENB.PR.F | FixedReset | 68,490 | Nesbitt bought 16,500 from TD at 25.65; Scotia crossed 30,000 at 25.61. YTW SCENARIO Maturity Type : Call Maturity Date : 2018-06-01 Maturity Price : 25.00 Evaluated at bid price : 25.70 Bid-YTW : 3.69 % |
| There were 24 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| ELF.PR.G | Perpetual-Discount | Quote: 22.09 – 22.91 Spot Rate : 0.8200 Average : 0.5337 YTW SCENARIO |
| BAM.PR.M | Perpetual-Discount | Quote: 22.31 – 22.91 Spot Rate : 0.6000 Average : 0.3877 YTW SCENARIO |
| BMO.PR.L | Deemed-Retractible | Quote: 26.78 – 27.02 Spot Rate : 0.2400 Average : 0.1448 YTW SCENARIO |
| CM.PR.K | FixedReset | Quote: 26.35 – 26.70 Spot Rate : 0.3500 Average : 0.2625 YTW SCENARIO |
| GWO.PR.M | Deemed-Retractible | Quote: 26.15 – 26.49 Spot Rate : 0.3400 Average : 0.2552 YTW SCENARIO |
| RY.PR.L | FixedReset | Quote: 26.51 – 26.82 Spot Rate : 0.3100 Average : 0.2322 YTW SCENARIO |