May 4, 2012

There are tentative advances in exchange trading for corporate bonds:

Goldman Sachs Group Inc. (GS) will start an electronic trading system for corporate bonds this month as the fifth-biggest U.S. bank adapts to regulatory changes and competition, according to a person familiar with the plans.

The platform, called GSessions, has been under development for a year, said the person, who declined to be identified because the New York-based firm isn’t making details public yet. The Wall Street Journal reported the initiative late yesterday on its website.

The move comes three weeks after BlackRock Inc. (BLK), the world’s largest money manager, said it was planning its own bond-trading platform called Aladdin Trading Network that would allow clients to bypass Wall Street firms such as Goldman Sachs.

The profitability of Wall Street firms is being challenged by regulations requiring that they hold more capital as a buffer against potential losses from assets such as corporate debt. A U.S. law that seeks to prohibit federally insured banks from making bets with their own money may also hinder lenders’ ability to commit money to buy securities from clients, according to analysts including Brad Hintz at Sanford C. Bernstein & Co.

GSessions will start by offering two five-minute trading sessions a day, one in an investment-grade bond and another in a high-yield, high-risk security, the person said. Speculative- grade, or junk, bonds are rated below Baa3 by Moody’s Investors Service and lower than BBB- at Standard & Poor’s.

At the start of each session, Goldman Sachs will post a bid and offer price and notify clients of the maximum amount of liquidity the firm is willing to provide to fill orders, according to the person.

Rather than matching trades between clients, Goldman Sachs will act as the counterparty to all trades and collect the spread, or difference, between the bid and offer prices, the person said. That gap will be lower than what Goldman Sachs earns on non-computerized trades, the person said.

As I have said many, many times on this blog, exchange trading for corporate bonds will lead to tighter, more brittle markets and be bad for capital formation – to the extent that instruments are listed. In the States, especially, the action has moved into the private-placement and CDS markets, to avoid regulatory bullshit and get on with the job. However, the regulator who cares about the actual purpose of capital markets has not yet been born.

I have often criticized the entire concept of a B.Comm. degree (a guy with a B.Comm. is a guy who wanted to learn about business, so he went to school. Strike one.). Seems that others share my disdain:

Yahoo! Inc. (YHOO) is under pressure from Third Point LLC, one of its largest investors, to dismiss Chief Executive Officer Scott Thompson after his academic computer science credentials were misrepresented.

Martin McGovern, a spokesman for Stonehill in Easton, Massachusetts, said that Thompson received a bachelor’s of science in business administration, with a major in accounting on May 20, 1979. He declined to comment further.

Loeb said that Patti Hart, a Yahoo board member who chairs the search committee, inflated her degree too. Hart, who also serves as CEO of International Game Technology (IGT), is listed in filings as holding a “bachelor’s degree in marketing and economics” from Illinois State University, Loeb said. “However, we understand that Ms. Hart’s degree is in business administration. She received a degree in neither marketing nor economics.”

Today’s PrefBlog Precious Little Do-Gooder Zinger is about donating eye-glasses:

In a paper published in March in the journal Optometry and Vision Science, four researchers compare the full costs of delivering used glasses to the costs of instead delivering ready-made glasses in standard powers (like my drugstore readers, but for myopia as well). The authors find that recycled glasses cost nearly twice as much per usable pair.

Rob Carrick has a piece up titled Preferred shares: How to navigate rising rates, but I’m not quoted.

There was a slight pullback in the Canadian preferred share market today, with PerpetualDiscounts off 1bp, FixedResets down 7bp and DeemedRetractibles losing 8bp. Volatility was minimal. Volume was extremely low.

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 -1.4780 % 2,505.6
FixedFloater 4.36 % 3.72 % 29,490 17.89 1 -0.2288 % 3,617.6
Floater 2.88 % 2.88 % 56,038 20.02 3 -1.4780 % 2,705.4
OpRet 4.75 % 2.36 % 52,294 1.12 5 0.0765 % 2,511.1
SplitShare 5.23 % 4.04 % 64,168 0.62 4 -0.2119 % 2,700.2
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0765 % 2,296.2
Perpetual-Premium 5.43 % -1.15 % 78,783 0.09 25 -0.0078 % 2,233.7
Perpetual-Discount 5.06 % 5.06 % 89,733 15.20 8 0.0359 % 2,446.7
FixedReset 5.03 % 3.04 % 189,110 2.16 68 -0.0715 % 2,402.2
Deemed-Retractible 4.95 % 3.61 % 181,430 1.43 45 -0.0825 % 2,329.6
Performance Highlights
Issue Index Change Notes
BAM.PR.C Floater -2.72 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-05-04
Maturity Price : 17.90
Evaluated at bid price : 17.90
Bid-YTW : 2.95 %
IAG.PR.E Deemed-Retractible -1.21 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-12-31
Maturity Price : 25.00
Evaluated at bid price : 26.06
Bid-YTW : 5.37 %
Volume Highlights
Issue Index Shares
Traded
Notes
MFC.PR.G FixedReset 97,745 TD crossed 12,300 at 25.60. Nesbitt corssed 74,800 at 25.55.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2016-12-19
Maturity Price : 25.00
Evaluated at bid price : 25.45
Bid-YTW : 4.12 %
BNS.PR.Z FixedReset 71,310 Desjardins crossed 50,000 at 25.14 and sold 16,500 to GMP at the same price.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.12
Bid-YTW : 3.21 %
BAM.PF.A FixedReset 52,005 RBC crossed 50,000 at 25.40.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-09-30
Maturity Price : 25.00
Evaluated at bid price : 25.45
Bid-YTW : 4.32 %
MFC.PR.H FixedReset 51,100 RBC crossed 50,000 at 25.85.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-03-19
Maturity Price : 25.00
Evaluated at bid price : 25.85
Bid-YTW : 4.05 %
ENB.PR.H FixedReset 22,495 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-05-04
Maturity Price : 23.27
Evaluated at bid price : 25.56
Bid-YTW : 3.58 %
BAM.PR.B Floater 20,677 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-05-04
Maturity Price : 18.36
Evaluated at bid price : 18.36
Bid-YTW : 2.88 %
There were 14 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
BAM.PR.C Floater Quote: 17.90 – 18.49
Spot Rate : 0.5900
Average : 0.3627

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-05-04
Maturity Price : 17.90
Evaluated at bid price : 17.90
Bid-YTW : 2.95 %

BNS.PR.K Deemed-Retractible Quote: 25.66 – 26.06
Spot Rate : 0.4000
Average : 0.3044

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2012-06-03
Maturity Price : 25.50
Evaluated at bid price : 25.66
Bid-YTW : -1.97 %

BAM.PR.X FixedReset Quote: 25.01 – 25.25
Spot Rate : 0.2400
Average : 0.1563

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-05-04
Maturity Price : 23.15
Evaluated at bid price : 25.01
Bid-YTW : 3.58 %

IAG.PR.E Deemed-Retractible Quote: 26.06 – 26.39
Spot Rate : 0.3300
Average : 0.2516

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-12-31
Maturity Price : 25.00
Evaluated at bid price : 26.06
Bid-YTW : 5.37 %

TCA.PR.X Perpetual-Premium Quote: 52.25 – 52.49
Spot Rate : 0.2400
Average : 0.1718

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-10-15
Maturity Price : 50.00
Evaluated at bid price : 52.25
Bid-YTW : 2.48 %

HSE.PR.A FixedReset Quote: 26.09 – 26.30
Spot Rate : 0.2100
Average : 0.1420

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-05-04
Maturity Price : 23.58
Evaluated at bid price : 26.09
Bid-YTW : 3.21 %

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