The insurance companies have figured out a new way to sell annuities:
General Motors Co. (GM)’s deal to cut pension obligations by $26 billion and shift plans to Prudential Financial Inc. (PRU) is poised to fuel more transfers as U.S. firms face a retirement-funding shortfall the size of Greece’s debt.
MetLife Inc. (MET) and Prudential are among insurers that expect the GM deal to encourage more corporations to offload plans. Pension liabilities exceed assets by more than $435 billion, according to a Bloomberg review of data disclosed by firms in the Russell 1000 Index of large U.S. companies. Greece, facing demands for austerity measures in exchange for rescue funds, had total debt of about $450 billion at the end of 2011.
Employers who endured two stock-market crashes in a decade and 10-year Treasury yields near a record low may be tempted to follow GM’s lead by paying insurers to take the risk that market returns are inadequate or that beneficiaries live longer than expected. Transferring the obligations can reduce swings in earnings tied to securities and relieve companies of the need to manage large pools of money.
There’s a very revealing quote out about High Frequency Trading:
The advocates argue that “ ‘It’s the way of the world, people who are in denial are Luddites,’ that whole school of thought,” [, chief executive officer of the Investment Industry Regulatory Organization of Canada ] Ms. Wolburgh Jenah says. “Then there’s the school of thought that is ‘We don’t understand the markets any more, this new breed of participant has come in and taken over.’ ”
The wickle boys don’t like the idea that they might have to learn something new, or the young and the hungry will eat their lunch. Boo Hoo Hoo. See the February 8 post for more mockery of the incompetent.
It was a mixed day for the Canadian preferred share market, with PerpetualPremiums down 3bp, FixedResets winning 17bp and DeemedRetractibles gaining 10bp. Volatility was minor. Volume was low, but with a few issues showing very good volume.
| 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 | -0.3208 % | 2,296.6 |
| FixedFloater | 4.44 % | 3.82 % | 21,321 | 17.63 | 1 | 0.5164 % | 3,552.9 |
| Floater | 3.17 % | 3.17 % | 72,336 | 19.30 | 3 | -0.3208 % | 2,479.7 |
| OpRet | 4.81 % | 2.50 % | 37,344 | 1.01 | 5 | 0.0310 % | 2,507.9 |
| SplitShare | 5.28 % | -7.34 % | 44,214 | 0.50 | 4 | 0.1797 % | 2,710.5 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.0310 % | 2,293.3 |
| Perpetual-Premium | 5.42 % | 3.63 % | 89,267 | 0.56 | 27 | -0.0261 % | 2,231.9 |
| Perpetual-Discount | 5.05 % | 5.10 % | 118,370 | 15.32 | 7 | 0.1900 % | 2,445.5 |
| FixedReset | 5.04 % | 3.15 % | 204,283 | 7.84 | 71 | 0.1719 % | 2,394.7 |
| Deemed-Retractible | 5.01 % | 3.95 % | 159,032 | 2.66 | 45 | 0.1023 % | 2,306.9 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| TCA.PR.X | Perpetual-Premium | -1.49 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2013-10-15 Maturity Price : 50.00 Evaluated at bid price : 51.40 Bid-YTW : 4.04 % |
| MFC.PR.F | FixedReset | -1.36 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.29 Bid-YTW : 4.19 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| RY.PR.R | FixedReset | 279,691 | National crossed 273,200 at 26.33. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-02-24 Maturity Price : 25.00 Evaluated at bid price : 26.34 Bid-YTW : 3.24 % |
| CU.PR.D | Perpetual-Premium | 231,790 | Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2042-06-19 Maturity Price : 24.65 Evaluated at bid price : 25.05 Bid-YTW : 4.90 % |
| BNS.PR.R | FixedReset | 156,976 | Desjardins crossed blocks of 50,000 shares, 25,000 and 42,500, all at 25.63. National crossed 25,000 at the same price. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.65 Bid-YTW : 3.14 % |
| RY.PR.I | FixedReset | 108,150 | RBC crossed two blocks of 25,000 each, both at 25.57. Desjardins crossed 50,000 at the same price. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.57 Bid-YTW : 3.22 % |
| RY.PR.N | FixedReset | 71,560 | RBC crossed 69,400 at 26.36. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-02-24 Maturity Price : 25.00 Evaluated at bid price : 26.32 Bid-YTW : 3.29 % |
| BMO.PR.O | FixedReset | 56,170 | Desjardins crossed 50,000 at 26.75. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-05-25 Maturity Price : 25.00 Evaluated at bid price : 26.73 Bid-YTW : 3.03 % |
| There were 26 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| W.PR.H | Perpetual-Premium | Quote: 25.90 – 28.13 Spot Rate : 2.2300 Average : 1.2304 YTW SCENARIO |
| TCA.PR.X | Perpetual-Premium | Quote: 51.40 – 52.00 Spot Rate : 0.6000 Average : 0.3662 YTW SCENARIO |
| BAM.PR.J | OpRet | Quote: 26.45 – 26.88 Spot Rate : 0.4300 Average : 0.3066 YTW SCENARIO |
| FTS.PR.H | FixedReset | Quote: 25.46 – 25.79 Spot Rate : 0.3300 Average : 0.2340 YTW SCENARIO |
| TRP.PR.A | FixedReset | Quote: 25.57 – 25.77 Spot Rate : 0.2000 Average : 0.1398 YTW SCENARIO |
| BNS.PR.Q | FixedReset | Quote: 25.56 – 25.71 Spot Rate : 0.1500 Average : 0.0987 YTW SCENARIO |