PrefBlog

Today’s FOMC statement was accomodative:

To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee will continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month. The Committee also will continue through the end of the year its program to extend the average maturity of its holdings of Treasury securities, and it is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. These actions, which together will increase the Committee’s holdings of longer-term securities by about $85 billion each month through the end of the year, should put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.
….
To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens. In particular, the Committee also decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that exceptionally low levels for the federal funds rate are likely to be warranted at least through mid-2015.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Dennis P. Lockhart; Sandra Pianalto; Jerome H. Powell; Sarah Bloom Raskin; Jeremy C. Stein; Daniel K. Tarullo; John C. Williams; and Janet L. Yellen. Voting against the action was Jeffrey M. Lacker, who opposed additional asset purchases and disagreed with the description of the time period over which a highly accommodative stance of monetary policy will remain appropriate and exceptionally low levels for the federal funds rate are likely to be warranted.

The Globe published a nice essay on What-Debt’s muscleheaded nationalism:

State-owned enterprises have been active participants in the global economy for decades. In fact, they drive 70 per cent of activity in the global energy sector.

Canada knows a thing or two about so-called SOEs. Not so very long ago we had Petro-Canada, Canadian National and Air Canada. We still have Canada Post, which acquired Purolator Courier to compete with UPS and FedEx. We own “Crown corporations,” such as Ridley Terminals (for which I used to be chairman), which fulfills no discernible public policy purpose other than to generate profits for their owners, the taxpayer.

The apparent indigestion being caused by the CNOOC-Nexen and Petronas-Progress deals has nothing to do with their size or even the “strategic” nature of their industries. There is nothing strategic to Canada in either Nexen or Progress. The real issue is who the investors are and where they come from.

And in other Ottawa news:

The Conservative government no longer has targets for erasing Canada’s federal debt, which grew by $125-billion since the recession.

Finance Minister Jim Flaherty confirmed Wednesday that the recession has derailed Ottawa’s long-term debt plans and new targets won’t be set until the government starts posting yearly surpluses again – which is not forecasted to happen for three more years.

Too bad we don’t have a structural surplus of $10-billion p.a. any more. Oh, well…

It was a mixed day for the Canadian preferred share market, with PerpetualPremiums down 2bp, FixedResets up 6bp and DeemedRetractibles gaining 3bp. Volatility was almost non-existent. Volume was quite heavy.

PerpetualDiscounts now yield 4.92%, equivalent to 6.40% interest at the standard equivalency factor of 1.3x. Long corporates are at about 4.35% so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now at about 205bp, slightly (and perhaps spuriously) wider than the 200bp reported October 17.

This entry was posted on Thursday, October 25th, 2012 at 2:29 am and is filed under Market Action. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.