There are some indications of the size of QE3:
Federal Reserve Bank of San Francisco President John Williams called for additional bond purchases by the Fed to spur economic growth that would be open- ended and total at least $600 billion.
High unemployment and inflation below the Fed’s 2 percent target “would argue for additional accommodation now,” Williams said today in an interview on Bloomberg Television from Jackson Hole, Wyoming. “I would like to see something that has a measurable effect on job growth. That would be arguing for a pretty large program” that’s “at least as large as QE2,” or the second round of quantitative easing, he said.
The fiscal cliff in the US pales beside the Spanish one:
Spanish Prime Minister Mariano Rajoy said the country is unable to fund itself at the current cost of borrowing and needs sacrifices such as higher taxes to restore its national standing.
“If we do this we will start to recover confidence as a serious country that does what it says,” Rajoy said today in a speech to members of his People’s Party at Soutomaior Castle in Galicia. “At the moment we can’t finance ourselves at the prices of the market.”
Rajoy was addressing supporters in his home region on the same day that increases to value-added tax take effect. Spanish households already are squeezed by unemployment at close to 25 percent and austerity measures that will be equal to 15 percent of gross domestic product by 2014.
Covered bonds are in the news!
Investors could earn juicy yields buying beaten-up covered bonds secured on Spanish mortgages. The snag is that no one can really tell what would happen in a covered bond default.
It’s hard not to be tempted by the yields on offer on some Spanish mortgage covered bonds, securities that rank alongside senior debt, but have a priority claim on the banks’ real estate loans. Take Bankia, the soon-to-be-recapitalized lender, whose such bonds maturing in May 2018 are yielding almost 9 per cent, according to Thomson Reuters prices, about three percentage points more than Spanish government securities.
…
Take Bankia. At the end of the first quarter, each euro of its covered bonds was backed by 2.08 euros worth of residential and commercial real estate loans according to Moody’s. Assume a stressed scenario similar to the Irish housing downturn, as modelled by Fitch Ratings. The collateral would still fetch enough to cover 111 per cent of the debt, even after deducting expected losses from defaults and assuming each loan had to be sold for 70 cents of its nominal value, according to a Breakingviews analysis.Still, there are reasons to be wary. First, the amount of collateral backing the bonds is not set in stone; it would reduce over time before default, say if a bank issued lots of covered bonds to the European Central Bank. Second, it’s hard to see who would buy the loans in an extreme, systemic crisis. Losses could be even steeper if Spain left the €.
The Canadian preferred share market started the month on a sour note, with PerpetualPremiums off 1bp, FixedResets losing 8bp and DeemedRetractibles down 5bp. Volatility was average, but dominated by Enbridge which announced a new issue today. Volume was extremely low, also dominated by Enbridge.
| HIMIPref™ Preferred Indices These values reflect the December 2008 revision of the HIMIPref™ Indices Values are provisional and are finalized monthly |
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| 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 | -0.3074 % | 2,397.3 |
| FixedFloater | 0.00 % | 0.00 % | 0 | 0.00 | 1 | -0.3074 % | 3,586.2 |
| Floater | 3.04 % | 3.08 % | 54,085 | 19.45 | 3 | -0.3074 % | 2,588.5 |
| OpRet | 4.63 % | 3.37 % | 29,647 | 0.79 | 4 | -0.0859 % | 2,548.6 |
| SplitShare | 5.48 % | 5.00 % | 74,576 | 4.62 | 3 | -0.0400 % | 2,797.7 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.0859 % | 2,330.5 |
| Perpetual-Premium | 5.29 % | 3.31 % | 91,459 | 0.36 | 28 | -0.0062 % | 2,278.7 |
| Perpetual-Discount | 4.94 % | 4.97 % | 101,495 | 15.45 | 3 | -0.4281 % | 2,531.0 |
| FixedReset | 4.98 % | 3.00 % | 171,901 | 3.95 | 70 | -0.0794 % | 2,428.1 |
| Deemed-Retractible | 4.94 % | 3.51 % | 118,866 | 1.96 | 46 | -0.0510 % | 2,368.3 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| ENB.PR.D | FixedReset | -1.53 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2042-09-04 Maturity Price : 23.18 Evaluated at bid price : 25.15 Bid-YTW : 3.61 % |
| ENB.PR.H | FixedReset | -1.42 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2042-09-04 Maturity Price : 23.11 Evaluated at bid price : 25.00 Bid-YTW : 3.45 % |
| HSB.PR.C | Deemed-Retractible | -1.42 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2012-10-04 Maturity Price : 25.50 Evaluated at bid price : 25.76 Bid-YTW : 3.46 % |
| ENB.PR.B | FixedReset | -1.10 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2042-09-04 Maturity Price : 23.24 Evaluated at bid price : 25.17 Bid-YTW : 3.62 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| ENB.PR.B | FixedReset | 165,880 | RBC crossed four blocks: 75,000 shares, 17,200 shares, 20,000 and 10,500, all at 25.20. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2042-09-04 Maturity Price : 23.24 Evaluated at bid price : 25.17 Bid-YTW : 3.62 % |
| CM.PR.P | Deemed-Retractible | 111,920 | Called for redemption. YTW SCENARIO Maturity Type : Call Maturity Date : 2012-10-29 Maturity Price : 25.00 Evaluated at bid price : 25.29 Bid-YTW : 1.38 % |
| ENB.PR.N | FixedReset | 111,445 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2042-09-04 Maturity Price : 23.17 Evaluated at bid price : 25.23 Bid-YTW : 3.83 % |
| ENB.PR.H | FixedReset | 97,716 | RBC crossed 25,000 at 25.00.
YTW SCENARIO |
| ENB.PR.F | FixedReset | 42,234 | RBC crossed 25,000 at 25.20. Maturity Type : Limit Maturity Maturity Date : 2042-09-04 Maturity Price : 23.18 Evaluated at bid price : 25.20 Bid-YTW : 3.70 % |
| ENB.PR.D | FixedReset | 27,536 | TD crossed 10,000 at 25.20. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2042-09-04 Maturity Price : 23.18 Evaluated at bid price : 25.15 Bid-YTW : 3.61 % |
| There were 4 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| TCA.PR.Y | Perpetual-Premium | Quote: 51.61 – 51.98 Spot Rate : 0.3700 Average : 0.2665 YTW SCENARIO |
| BAM.PR.M | Perpetual-Discount | Quote: 24.25 – 24.49 Spot Rate : 0.2400 Average : 0.1597 YTW SCENARIO |
| SLF.PR.D | Deemed-Retractible | Quote: 23.15 – 23.35 Spot Rate : 0.2000 Average : 0.1217 YTW SCENARIO |
| GWO.PR.G | Deemed-Retractible | Quote: 25.29 – 25.50 Spot Rate : 0.2100 Average : 0.1358 YTW SCENARIO |
| SLF.PR.F | FixedReset | Quote: 26.20 – 26.42 Spot Rate : 0.2200 Average : 0.1461 YTW SCENARIO |
| SLF.PR.I | FixedReset | Quote: 25.50 – 25.70 Spot Rate : 0.2000 Average : 0.1328 YTW SCENARIO |