Play the exciting new Spanish Shell Game!
Spanish bond yields surged the most in four months in the first trading after the government in Madrid sought a bailout for its banks. Investors speculated the 100 billion euros ($125 billion) may not be enough.
The lifeline from the euro area, aimed at loosening the connection between banks and the state, risks doing the opposite as foreign investors continue to shun the nation’s bonds and Prime Minister Mariano Rajoy’s government grows increasingly dependent on domestic lenders.
“This 100 billion will be added to the public finances of Spain so it just reinforces the link between banks and the sovereign,” Olly Burrows, credit analyst at Rabobank International, said in a phone interview from London. “Spain is receiving funds to bail out its banks, which have been buying Spanish debt while everyone else has been getting out.”
…
Spanish banks were among the biggest beneficiaries of 1 trillion euros of three-year emergency loans from the ECB, which were recycled into sovereign bonds in a trend Economy Minister Luis de Guindos said in April “increased the correlation between sovereign risk and banking risk.” The ECB may need to offer another round of that financing to ensure local banks can fund the sovereign, [co-chief economist at Deutsche Bank AG in London Gilles] Moec said.
French securities slid with benchmark German bunds as Fitch Ratings said it may cut credit grades across Europe because policy makers are failing to demonstrate they can bring the debt crisis under control. The yield on Italian 10-year securities jumped to the most since January as the country prepared to sell bonds on June 14. Germany will offer 10-year bunds, Europe’s benchmark securities, tomorrow, after Austria and the Netherlands auctioned debt today.
Most governments do all they can to attract high-earning migrants. Not the UK:
U.K. lawyers are fielding a flood of questions from multinational firms as a government shake-up of visa rules threatens to cut short the careers of top traders and other executives transferred from overseas.
Changes in the past two years include a five-year cap on how long employees who moved to the U.K. under the Intra Company Transfer system can stay, and the removal of their right to settle permanently. The introduction of a cooling-off period between visa applications means employees have to spend at least 12 months out of the country once their permit expires.
“We’ve seen quite significant panic among a number of clients,” said Ben Sheldrick, a partner with Magrath LLP Solicitors in London. “The government wants to be seen to be tough on immigration and one of the only groups they can be seen to be reducing is the skilled migrants sponsored by multinational firms.”
Canadian banks are worrying about appraisals:
Several Canadian banks have been quietly re-evaluating their appraisal strategies amid increased worries about the accuracy of property values in a market deemed at risk of overheating.
Lenders use a variety of techniques, including full appraisals, so-called “drive-by” appraisals based on the exterior of the home, and databases of market prices, to evaluate homes. The values they arrive at help determine how much money they should lend to mortgage borrowers. They are also key for measures such as the loan-to-value ratio that are used to track the health of loan portfolios and borrowers’ debt loads.
Banks are emphasizing on-site visits to value properties, especially those above a certain price or in rural areas. They are also paying closer attention to who does the appraisal.
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TD lends 80 per cent loan-to-value up to $900,000, but after that only lends 50 per cent, to protect itself against inflated values on expensive homes.
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California-based First American Financial Corp. had been selling Canadian banks a “guaranteed valuation” product that guaranteed the valuation of a property was accurate on the day a mortgage was issued. If it turned out later that it wasn’t, the bank could make a claim.But First American posted a first-quarter loss in 2011 as it took a $45-million reserve strengthening charge relating to this obscure Canadian product.
Policies that were experiencing claims had been written mostly in 2007 and 2008. Sources say the issue stemmed mainly from Alberta, where the housing market underwent a correction starting in 2007, and problems became apparent as default rates increased, leading banks to seize more homes as collateral.
If I were worried about an overheated property market, I’d convert today’s appraisal into 2008’s equivalent and lend against that – which is much the same thing as lowering the LTV ratio.
It was a positive day for the Canadian preferred share market, with PerpetualPremiums gaining 4bp, FixedResets winning 11bp and DeemedRetractibles up 7bp. Volatility was low. Volume was well below 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 | 0.3396 % | 2,302.6 |
| FixedFloater | 4.50 % | 3.87 % | 25,691 | 17.52 | 1 | -0.1419 % | 3,503.1 |
| Floater | 3.14 % | 3.17 % | 69,272 | 19.22 | 3 | 0.3396 % | 2,486.2 |
| OpRet | 4.79 % | 2.20 % | 37,824 | 1.01 | 5 | -0.0077 % | 2,509.1 |
| SplitShare | 5.26 % | -6.23 % | 47,375 | 0.52 | 4 | 0.4036 % | 2,722.3 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.0077 % | 2,294.3 |
| Perpetual-Premium | 5.45 % | 3.14 % | 79,638 | 0.62 | 26 | 0.0361 % | 2,229.4 |
| Perpetual-Discount | 5.02 % | 5.05 % | 121,297 | 15.29 | 7 | -0.0177 % | 2,452.1 |
| FixedReset | 5.04 % | 3.16 % | 195,476 | 7.80 | 71 | 0.1052 % | 2,391.0 |
| Deemed-Retractible | 5.02 % | 3.89 % | 145,446 | 2.96 | 45 | 0.0707 % | 2,300.0 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| IGM.PR.B | Perpetual-Premium | -1.07 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2018-12-31 Maturity Price : 25.00 Evaluated at bid price : 25.77 Bid-YTW : 5.50 % |
| SLF.PR.F | FixedReset | 1.69 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2014-06-30 Maturity Price : 25.00 Evaluated at bid price : 26.51 Bid-YTW : 2.82 % |
| FBS.PR.C | SplitShare | 1.99 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2012-12-15 Maturity Price : 10.00 Evaluated at bid price : 10.74 Bid-YTW : -9.25 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| BNS.PR.X | FixedReset | 273,623 | Scotia crossed 10,000 at 26.61; National crossed 50,000 at 26.65. RBC crossed two blocks of 100,000 each, one at 26.67, the other at 26.65. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-04-25 Maturity Price : 25.00 Evaluated at bid price : 26.65 Bid-YTW : 3.03 % |
| RY.PR.T | FixedReset | 137,158 | National crossed blocks of 77,600 and 45,000, both at 26.74. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-08-24 Maturity Price : 25.00 Evaluated at bid price : 26.75 Bid-YTW : 3.11 % |
| RY.PR.N | FixedReset | 101,144 | Desjardins crossed 99,000 at 26.35. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-02-24 Maturity Price : 25.00 Evaluated at bid price : 26.38 Bid-YTW : 3.11 % |
| GWO.PR.J | FixedReset | 80,538 | Nesbitt crossed 25,000, TD crossed 20,000 and RBC crossed 30,000, all at 26.00. YTW SCENARIO Maturity Type : Call Maturity Date : 2013-12-31 Maturity Price : 25.00 Evaluated at bid price : 25.95 Bid-YTW : 3.30 % |
| BMO.PR.M | FixedReset | 62,445 | Nesbitt crossed 60,800 at 25.60. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.58 Bid-YTW : 2.93 % |
| BNS.PR.K | Deemed-Retractible | 55,769 | RBC crossed 50,000 at 25.75. YTW SCENARIO Maturity Type : Call Maturity Date : 2012-07-12 Maturity Price : 25.50 Evaluated at bid price : 25.80 Bid-YTW : -2.52 % |
| There were 21 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| CIU.PR.A | Perpetual-Discount | Quote: 24.42 – 24.98 Spot Rate : 0.5600 Average : 0.3532 YTW SCENARIO |
| IAG.PR.C | FixedReset | Quote: 26.13 – 26.50 Spot Rate : 0.3700 Average : 0.2149 YTW SCENARIO |
| RY.PR.B | Deemed-Retractible | Quote: 25.68 – 25.99 Spot Rate : 0.3100 Average : 0.1990 YTW SCENARIO |
| HSB.PR.C | Deemed-Retractible | Quote: 25.76 – 26.10 Spot Rate : 0.3400 Average : 0.2499 YTW SCENARIO |
| BAM.PR.G | FixedFloater | Quote: 21.11 – 21.40 Spot Rate : 0.2900 Average : 0.2326 YTW SCENARIO |
| IAG.PR.G | FixedReset | Quote: 25.16 – 25.38 Spot Rate : 0.2200 Average : 0.1638 YTW SCENARIO |