April 25, 2012

Looks like a double-dip in the UK:

The U.K. economy shrank in the first quarter as Britain slid into its first double-dip recession since the 1970s, forcing Prime Minister David Cameron to defend his spending cuts in Parliament.

Gross domestic product fell 0.2 percent from the fourth quarter of 2011, when it declined 0.3 percent, the Office for National Statistics said today in London. The median of 40 estimates in a Bloomberg News survey was for an increase of 0.1 percent. A technical recession is defined as two straight quarters of contraction.

But the EU has a plan!

Bankers (SX7P) face a backlash from European Union lawmakers determined to cut their bonuses as part of a quest to reshape lenders as utilities like water and electricity providers rather than money-making machines.

The European Parliament is proposing an array of amendments to a draft law implementing capital rules by the Basel Committee on Banking Supervision to attack the bonus culture legislators partly blame for bringing the region’s economy to the brink of collapse. A vote is set for May 8.

I don’t think anybody’s given any thought about the potential consequences for capital markets.

US housing is getting some good press:

Data released yesterday showing better-than-estimated new- home sales and a slowdown in price declines are bolstering optimism that the market is poised for a sustainable recovery. Economists including Bank of Tokyo-Mitsubishi UFJ’s Chris Rupkey, Bank of America Corp.’s Michelle Meyer and Mark Fleming of CoreLogic Inc. are also predicting prices are close to a trough after a 35 percent slump from a July 2006 peak, even as the threat of more foreclosures loom to boost supply.

The FOMC statement was no surprise:

The Committee also decided to continue its program to extend the average maturity of its holdings of securities as announced in September. The Committee is maintaining its existing policies of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate to promote a stronger economic recovery in a context of price stability.

Voting against the action was Jeffrey M. Lacker, who does not anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate through late 2014.

The Globe comments:

Investors, you are on your own.

The Federal Reserve’s policy committee ended a two-day meeting Wednesday by issuing a statement that is almost identical to the one the Federal Open Market Committee posted after its previous session in March.

A separate release showed the Fed is only marginally more optimistic about the economic outlook than it was at the start of the year. The central bank’s forecast for economic growth this year, based on the projections of 17 policy makers, is between 2.4 per cent and 2.9 per cent, compared with 2.2 per cent and 2.7 per cent previously. The forecast for 2013 is 2.7 per to 3.1 per cent, essentially unchanged.

Rumours are swirling about Canadian mortgage finance:

In late March, the federal budget took aim at supervision of Canada Mortgage and Housing Corp., which controls about 75% of the mortgage default insurance market. In Thursday’s budget implementation bill, Ottawa is expected say how this oversight will change.

CMHC now falls under the jurisdiction of the minister responsible for Human Resources and Skills Development Canada. But, as first reported by the Financial Post, Ottawa has been examining putting the Crown insurer under the direct supervision of the Office of the Superintendent of Financial Institutions — a powerful financial regulator with the power to enforce a broad range of actions.

The government said Wednesday it plans to introduce a law “to implement certain provisions of the budget,” according to a document known as the Notice Paper.

There may also be details Thursday about a new covered bond program, which will be available to federally and provincially regulated mortgage lenders in Canada and administered by CMHC.

“A legislative framework will support financial stability by helping lenders find new sources of funding and my making the market for Canadian covered bonds more robust,” according to the budget.

S&P has a negative outlook on Ontario:

  • We are revising our outlook on the Province of Ontario to negative from stable.
  • At the same time, we are affirming our ratings, including our ‘AA-‘ long-term and ‘A-1+’ short-term issuer credit ratings on the province.
  • The outlook revision reflects our view regarding the minority legislature’s ability to meet what we view as challenging cost containment targets in the next one to two years necessary for the debt burden to peak in fiscal 2015 as planned.

We believe the province’s main credit challenges include its continuing weak budgetary and debt metrics and its challenging cost-containment plan required to achieve budgetary balance by fiscal 2018. In fiscal 2012, it recorded an operating deficit of about 12% of operating revenues (Standard & Poor’s adjusted) and an after-capital deficit of more than 22% of total revenues (Standard & Poor’s adjusted), which bettered the government’s forecast for a third consecutive year, but which remains stubbornly high, in our view.

DBRS confirmed AIM.PR.A at Pfd-3 Stable:

DBRS has today confirmed Groupe Aeroplan Inc.’s (Aeroplan or the Company) Issuer Rating and Senior Secured Debt rating at BBB and its Preferred Shares rating at Pfd-3, all with Stable trends. The ratings continue to benefit from the Company’s (1) brand strength in its core markets, (2) strong relationships with key Accumulation Partners and (3) stable free cash generating capacity. The ratings also reflect the fact that the Company’s overall performance depends heavily on consumer spending patterns and general economic conditions, and some degree of revenue concentration still exists.

In terms of financial profile, operating cash flow in F2012 is expected to be somewhat negatively affected by the European Court of Justice (ECJ) value-added tax (VAT) judgment (slated to be completed toward the end of F2012). That said, DBRS still anticipates cash flow from operations (after changes in working capital and deferred revenue) to increase to the range of $290 million to $310 million. Dividends are expected to increase modestly and capital expenditures are expected to be slightly higher at approximately $55 million in F2012 to fund software development initiatives that were set toward the end of F2011. As such, DBRS expects Aeroplan to generate healthy free cash flow levels of $115 million to $135 million in F2012.

Although Aeroplan would have the capacity to further reduce debt and improve its financial profile, DBRS expects the Company will use its free cash flow primarily to fund its growth ambitions and increased returns to shareholders. As such, DBRS expects Aeroplan’s debt-to-adjusted EBITDA to operate within the range of 2.0x to 2.5x in the near to medium term.

It was a mildly negative day for the Canadian preferred share market, with PerpetualPremiums losing 9bp, while both FixedResets and DeemedRetractibles were down 4bp. There was not much volatility; what there was was uniformly negative. Volume was average.

PerpetualDiscounts now yield 5.25%, equivalent to 6.82% interest at the standard equivalency factor of 1.3x. Long corporates now yield 4.6%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 220bp, a slight (and perhaps spurious) narrowing from the 225bp reported April 18.

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 -0.0914 % 2,504.3
FixedFloater 4.50 % 3.84 % 32,506 17.64 1 -1.7691 % 3,501.5
Floater 2.88 % 2.88 % 46,536 20.03 3 -0.0914 % 2,703.9
OpRet 4.75 % 2.70 % 52,270 1.12 5 0.1610 % 2,508.1
SplitShare 5.24 % -0.37 % 73,523 0.64 4 0.1683 % 2,698.3
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.1610 % 2,293.4
Perpetual-Premium 5.47 % 2.51 % 80,189 0.10 23 -0.0926 % 2,220.7
Perpetual-Discount 5.18 % 5.25 % 152,843 15.01 10 -0.0744 % 2,409.3
FixedReset 5.02 % 3.09 % 194,341 2.19 67 -0.0355 % 2,397.8
Deemed-Retractible 4.97 % 3.76 % 194,703 3.02 46 -0.0428 % 2,308.1
Performance Highlights
Issue Index Change Notes
IAG.PR.A Deemed-Retractible -1.89 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.30
Bid-YTW : 5.58 %
BAM.PR.G FixedFloater -1.77 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-04-25
Maturity Price : 21.83
Evaluated at bid price : 21.10
Bid-YTW : 3.84 %
IGM.PR.B Perpetual-Premium -1.52 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-12-31
Maturity Price : 25.00
Evaluated at bid price : 25.95
Bid-YTW : 5.24 %
MFC.PR.B Deemed-Retractible -1.15 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.29
Bid-YTW : 5.67 %
Volume Highlights
Issue Index Shares
Traded
Notes
BNS.PR.T FixedReset 78,608 TD crossed 25,000 at 26.60; Nesbitt crossed 50,000 at 26.62.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-04-25
Maturity Price : 25.00
Evaluated at bid price : 26.60
Bid-YTW : 2.92 %
GWO.PR.P Deemed-Retractible 66,680 Nesbitt crossed 50,000 at 25.95.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.90
Bid-YTW : 5.08 %
BNS.PR.Z FixedReset 61,225 GMP (who?) bought 29,800 from Desjardins at 25.15.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.12
Bid-YTW : 3.22 %
SLF.PR.D Deemed-Retractible 51,320 Anonymous crossed 20,700 at 22.70; Desjardins crossed 26,000 at 22.75.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.66
Bid-YTW : 5.79 %
IFC.PR.A FixedReset 47,274 Desjardins crossed 25,000 at 25.65, then another 15,000 at 25.72.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.75
Bid-YTW : 3.54 %
BMO.PR.L Deemed-Retractible 46,700 RBC crossed 10,400 at 26.99; TD crossed 30,000 at 27.00.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-05-25
Maturity Price : 26.00
Evaluated at bid price : 27.04
Bid-YTW : 2.67 %
There were 35 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
IAG.PR.F Deemed-Retractible Quote: 25.90 – 26.64
Spot Rate : 0.7400
Average : 0.4447

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.90
Bid-YTW : 5.51 %

FTS.PR.C OpRet Quote: 25.66 – 26.37
Spot Rate : 0.7100
Average : 0.4654

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2012-06-01
Maturity Price : 25.25
Evaluated at bid price : 25.66
Bid-YTW : -2.56 %

IAG.PR.E Deemed-Retractible Quote: 25.90 – 26.50
Spot Rate : 0.6000
Average : 0.4159

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-12-31
Maturity Price : 25.00
Evaluated at bid price : 25.90
Bid-YTW : 5.46 %

IGM.PR.B Perpetual-Premium Quote: 25.95 – 26.34
Spot Rate : 0.3900
Average : 0.2346

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-12-31
Maturity Price : 25.00
Evaluated at bid price : 25.95
Bid-YTW : 5.24 %

GWO.PR.L Deemed-Retractible Quote: 25.84 – 26.15
Spot Rate : 0.3100
Average : 0.2288

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-12-31
Maturity Price : 25.00
Evaluated at bid price : 25.84
Bid-YTW : 5.15 %

BAM.PR.C Floater Quote: 17.81 – 18.40
Spot Rate : 0.5900
Average : 0.5098

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-04-25
Maturity Price : 17.81
Evaluated at bid price : 17.81
Bid-YTW : 2.96 %

One Response to “April 25, 2012”

  1. […] PerpetualDiscounts now yield 5.08%, equivalent to 6.60% interest at the standard conversion factor of 1.3x. Long corporates now yield about 4.6% – oh, all right, maybe a hairsbreadth under – so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now 200bp, a sharp tightening from the 220bp reported April 25. […]

Leave a Reply

You must be logged in to post a comment.