March 5, 2008

I am feeling a bit shagged and fagged and fashed, it being a day of no small energy expenditure, O my brothers and only friends.

In other words – not much commentary today, folks! Just a pathetically small collection of links.

It’s not just housing any moreEconbrowser‘s James Hamilton took a look at Monday’s economic releases and didn’t like what he saw.

Monoline Death WatchNaked Capitalism takes a few gratuitous shots at bond insurers. I am surprised to learn that there are still a few people in the world who consider Credit Default Swap spreads to be related, somehow, to Credit Default Risk. Besides all the other problems, forced unwinding (by, f’rinstance, Apex & Sitka of BMO fame) is elevating these spreads to hell ‘n’ gone.

Update 2008-3-6: I note the following:

The higher costs are an unintended consequence of securities that allow investors to speculate on corporate creditworthiness. So-called correlation models used to value them have become unreliable in the fallout from the U.S. subprime mortgage crisis. Last month some showed the odds of a default by an investment-grade company spreading to others exceeded 100 percent — a mathematical impossibility, according to UBS AG.“The credit-default swap market is completely distorting reality,” said Henner Boettcher, treasurer of HeidelbergCement in Heidelberg, Germany, the country’s biggest cement maker. “Given what these spreads imply about defaults, we should be in a deep depression, and we are not.”

— end of 2008-3-6 update

Ten Year Treasuries Fall … It will soon be fashionable again to call oneself a “bond vigilante”.

Rather a quiet day for prefs, on the whole … even the price moves are basically just reversals of the more egregious recent zig-zags.The market drifted up, but has not recovered the ground lost after the TD New Issue announcement.

Note that these indices are experimental; the absolute and relative daily values are expected to change in the final version. In this version, index values are based at 1,000.0 on 2006-6-30
Index Mean Current Yield (at bid) Mean YTW Mean Average Trading Value Mean Mod Dur (YTW) Issues Day’s Perf. Index Value
Ratchet 5.52% 5.54% 34,512 14.6 2 +0.3508% 1,085.9
Fixed-Floater 4.79% 5.62% 65,247 14.73 8 -0.1047% 1,036.3
Floater 4.73% 4.80% 89,827 15.77 2 -0.1013% 865.6
Op. Retract 4.82% 2.97% 76,054 2.68 15 -0.1102% 1,048.3
Split-Share 5.24% 5.10% 97,761 4.03 14 +0.1088% 1,048.5
Interest Bearing 6.13% 6.31% 65,937 3.98 3 +1.1370% 1,093.5
Perpetual-Premium 5.74% 5.28% 300,928 5.58 17 +0.0431% 1,026.7
Perpetual-Discount 5.39% 5.43% 273,887 14.75 51 +0.1613% 955.0
Major Price Changes
Issue Index Change Notes
RY.PR.G PerpetualDiscount -1.3389% Now with a pre-tax bid-YTW of 5.31% based on a bid of 21.37 and a limitMaturity.
POW.PR.D PerpetualDiscount +1.7606% Now with a pre-tax bid-YTW of 5.48% based on a bid of 23.12 and a limitMaturity.
BSD.PR.A SplitShare +2.9883% Asset coverage of 1.6+:1 as of February 29, according to the company. Now with a pre-tax bid-YTW of 6.65% (mostly as interest) based on a bid of 9.65 and a hardMaturity 2015-3-31 at 10.00.
Volume Highlights
Issue Index Volume Notes
MFC.PR.C PerpetualDiscount 84,530 Nesbitt crossed 45,000 at 22.20, then another 19,100 at 22.21. Now with a pre-tax bid-YTW of 5.08% based on a bid of 22.20 and a limitMaturity.
MFC.PR.B PerpetualDiscount 83,714 Nesbitt crossed 30,000 at 22.90, then TD crossed two lots of 25,000 each at the same price. Now with a pre-tax bid-YTW of 5.09% based on a bid of 22.87 and a limitMaturity.
BNS.PR.M PerpetualDiscount 63,550 Now with a pre-tax bid-YTW of 5.26% based on a bid of 21.60 and a limitMaturity.
RY.PR.W PerpetualDiscount 58,601 Nesbitt crossed 50,000 at 23.70. Now with a pre-tax bid-YTW of 5.21% based on a bid of 23.65 and a limitMaturity.
BMO.PR.J PerpetualDiscount 41,200 Now with a pre-tax bid-YTW 5.38% based on a bid of 21.10 and a limitMaturity.

There were fifteen other index-included $25-pv-equivalent issues trading over 10,000 shares today.

6 Responses to “March 5, 2008”

  1. kaspu says:

    A thought, if you will, on the u.s dollar. Before discovering the joys of prefs and fixed income, the study of the economic systems of ancient civilizations, particularly of the sumerian babylonian and assyrian variety, was my vocation. One thing sticks out: the temptation to debase the currency as a means of stimulating foreign exports. there is not a single instance where this ever worked, and where it did not result in a dramatic increase in inflation. Closer to our own times, we see many examples of plantagenet kings in england, and spanish and french kings as well, clipping their coinage, and lowering the value of the currency. Even though most, not all, of my assets are in canadian dollars, it still sickens me to see an ostensibly smart person like Paulson, who should know better, playing this dumb-ass game.

  2. jiHymas says:

    I don’t watch currencies much, I’m afraid. Menzie Chinn of Econbrowser has written a topical piece.

    What do you say to the idea that it does work the other way – e.g., the strong US dollar for the first part of this decade sucked in a lot of cheap imports and kept inflation down? And in Canada, having the strong loonie has knocked hell out of the tree business – fortunately, there’s not so much competition to sell rocks and grease.

  3. madequota says:

    shagged, fagged, and fashed?

    I just couldn’t continue my self-imposed cyber exile any longer after seeing that one.

    What do you think about the idea of bank common, as opposed to bank prefs, as a dividend play? Example is BMO . . . at current levels of $42.50, dividend yield is 6.58% . . . higher than any bank pref.

    If ABCP kills them like the market is making it appear, then the pref div might be just as shaky as the common.

    Also, pref pricing seems to be settling in at lower levels after TD’s new issue. There are several exceptions . . . however, my old buds at RBC continue to do their job holding RY prefs disproportionately down (that was not an example of whining, just an observation!)


  4. cowboylutrell says:

    This is an ugly for split share preferreds. Finally.

  5. jiHymas says:

    shagged, fagged, and fashed?

    Anthony Burgess, A Clockwork Orange

    cyber exile

    Welcome back! Actually, I thought it was the High-Closing post that would tempt you!

    What do you think about the idea of bank common, as opposed to bank prefs, as a dividend play?

    This may be a factor in keeping perpetuals cheap to long corporates — assuming, of course, that they actually are cheap to long corporates. To answer that question, I’d have to take a view on the probability of a dividend cut which is something I won’t do. I find it quite hard enough to determine whether one pref is cheap to another, without comparing asset classes. It’s a chaotic world, I always say! Again and again and again and….

    This is an ugly for split share preferreds.

    I think I know what you mean, but can you elaborate?

  6. cowboylutrell says:

    I saw multiple and recurrent sales on the bid throughout the day for many split share preferreds, and especially in the afternoon. The bids went down quite a bit on a few issues. The split share preferreds may finally be starting to reflect the recent erosion of the buffer provided by the common shares.

    As the stock market was going down these past few days, the split preferred shares remained surprisingly resilient, and, thus, looked expensive to me.

    Who knows if it’s going to get as bad as it went around the end of 2007. It probably won’t. But anyway that was the way it all started back then.

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