The European Central Bank is going to purchase sovereigns:
As announced on 2 August 2012, the Governing Council of the European Central Bank (ECB) has today taken decisions on a number of technical features regarding the Eurosystem’s outright transactions in secondary sovereign bond markets that aim at safeguarding an appropriate monetary policy transmission and the singleness of the monetary policy. These will be known as Outright Monetary Transactions (OMTs) and will be conducted within the following framework:
…
Transactions will be focused on the shorter part of the yield curve, and in particular on sovereign bonds with a maturity of between one and three years.No ex ante quantitative limits are set on the size of Outright Monetary Transactions.
Creditor treatment The Eurosystem intends to clarify in the legal act concerning Outright Monetary Transactions that it accepts the same (pari passu) treatment as private or other creditors with respect to bonds issued by euro area countries and purchased by the Eurosystem through Outright Monetary Transactions, in accordance with the terms of such bonds.
Sterilisation The liquidity created through Outright Monetary Transactions will be fully sterilised.
Transparency Aggregate Outright Monetary Transaction holdings and their market values will be published on a weekly basis. Publication of the average duration of Outright Monetary Transaction holdings and the breakdown by country will take place on a monthly basis.
Pari passu treatment for ECB holdings would be a pleasant change … provided one can count on the Europeans to keep their word.
Jason Heath writes a piece in the Financial Post regarding a CDHowe report on Annuities:
But the C.D. Howe report is really interest-rate agnostic — focused more on reasons other than interest rates that Canadians are not opting for annuities. Among those reasons: poor annuity market infrastructure and pricing; non-integration of insurance, banking, pension and tax regulations; insufficient annuity product options; and a lack of government websites and resources to assist in our decisionmaking.
The CDHowe commentary by Norma L. Nielson is titled Annuities and Your Nest Egg: Reforms to Promote Optimal Annuitization of Retirement CapitalRetiring. I’ve scanned it – it follows the basic Financial Economist reasoning that Liquidity Value = 0, therefore Annuities = Good. I was particularly struck by the suggestion:
In some cases, public policymakers decide there is a need to subsidize one group at the expense of another. State social security systems may incorporate a significant element of wealth transfer from the rich to the poor, for example. In the case of decumulation products, it may be determined that it is socially desirable to provide gender-neutral annuities; i.e., for men to subsidize women.
Interesting report from a relatively free-market airline business:
Qantas Airways Ltd. (QAN)’s decision to drop a 17-year pact with British Airways (IAG) in favor of a deal with Dubai-based Emirates reveals the potential for fast-growing Gulf carriers to shatter the established airline order.
The 10-year accord, announced yesterday, will lead Qantas to scrap its revenue-sharing pact with British Airways to gain access to 70 Emirates destinations. While the Australian carrier will carry on code-sharing with BA, the move puts in doubt the standing of the Oneworld global alliance the pair helped form.
Too bad we won’t even let Emirates fly here as much as they like! But it’s just another example of the extent to which competition and efficiency is stifled in Canada. When politicians (such as Junior Minister Carney) say “Productivity!”, I say “Milk.”
It was a mixed day for the Canadian preferred share market, with PerpetualPremiums gaining 1bp, FixedResets down 8bp and DeemedRetractibles off 2bp. Volatility was minimal. Volume remained very 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 | -0.2107 % | 2,407.0 |
| FixedFloater | 4.44 % | 3.80 % | 33,969 | 17.70 | 1 | 0.0000 % | 3,586.2 |
| Floater | 3.02 % | 3.06 % | 55,888 | 19.49 | 3 | -0.2107 % | 2,599.0 |
| OpRet | 4.62 % | 3.26 % | 33,629 | 0.77 | 4 | -0.0286 % | 2,553.2 |
| SplitShare | 5.48 % | 4.99 % | 75,176 | 4.61 | 3 | -0.0533 % | 2,800.3 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.0286 % | 2,334.7 |
| Perpetual-Premium | 5.29 % | 3.22 % | 90,564 | 0.36 | 28 | 0.0132 % | 2,279.0 |
| Perpetual-Discount | 4.92 % | 4.94 % | 99,434 | 15.50 | 3 | -0.2480 % | 2,541.2 |
| FixedReset | 4.99 % | 3.03 % | 167,059 | 4.09 | 70 | -0.0773 % | 2,423.6 |
| Deemed-Retractible | 4.95 % | 3.51 % | 123,576 | 1.87 | 46 | -0.0246 % | 2,367.4 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| IAG.PR.F | Deemed-Retractible | -1.06 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 26.07 Bid-YTW : 5.30 % |
| ELF.PR.G | Perpetual-Discount | -1.01 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2042-09-06 Maturity Price : 23.35 Evaluated at bid price : 23.62 Bid-YTW : 5.09 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| MFC.PR.H | FixedReset | 81,901 | National crossed 25,000 at 25.81; RBC crossed 50,000 at the same price. YTW SCENARIO Maturity Type : Call Maturity Date : 2017-03-19 Maturity Price : 25.00 Evaluated at bid price : 25.69 Bid-YTW : 3.91 % |
| CU.PR.E | Perpetual-Premium | 79,040 | National crossed 75,500 at 26.01. YTW SCENARIO Maturity Type : Call Maturity Date : 2021-09-01 Maturity Price : 25.00 Evaluated at bid price : 25.93 Bid-YTW : 4.43 % |
| TRP.PR.B | FixedReset | 75,812 | TD crossed 74,300 at 25.25. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2042-09-06 Maturity Price : 23.47 Evaluated at bid price : 25.16 Bid-YTW : 2.58 % |
| SLF.PR.B | Deemed-Retractible | 75,258 | Nesbitt crossed 47,200 at 24.40; RBC crossed 25,000 at 24.45. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.43 Bid-YTW : 5.10 % |
| SLF.PR.C | Deemed-Retractible | 56,012 | National crossed 50,000 at 23.20. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.30 Bid-YTW : 5.37 % |
| TD.PR.E | FixedReset | 54,725 | Nesbitt crossed 50,000 at 26.65. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-04-30 Maturity Price : 25.00 Evaluated at bid price : 26.66 Bid-YTW : 2.50 % |
| There were 13 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| IAG.PR.C | FixedReset | Quote: 25.91 – 26.27 Spot Rate : 0.3600 Average : 0.2235 YTW SCENARIO |
| MFC.PR.B | Deemed-Retractible | Quote: 23.67 – 23.98 Spot Rate : 0.3100 Average : 0.1869 YTW SCENARIO |
| BAM.PR.T | FixedReset | Quote: 25.37 – 25.69 Spot Rate : 0.3200 Average : 0.1993 YTW SCENARIO |
| ELF.PR.G | Perpetual-Discount | Quote: 23.62 – 23.99 Spot Rate : 0.3700 Average : 0.2566 YTW SCENARIO |
| POW.PR.A | Perpetual-Premium | Quote: 25.51 – 25.84 Spot Rate : 0.3300 Average : 0.2447 YTW SCENARIO |
| ELF.PR.H | Perpetual-Premium | Quote: 25.91 – 26.15 Spot Rate : 0.2400 Average : 0.1622 YTW SCENARIO |