Banks engage in maturity transformation and this sometimes gets them in trouble. Many mutual funds and ETFs engage in liquidity transformation, and this is getting some people worried:
Junk-loan funds harbor a significant, structural risk that’s been masked by a three-year rally: Managers may struggle to raise enough cash to meet investor redemptions if too many try to get out at once.
While investors have plowed into the loan market by purchasing mutual-fund shares that trade daily, it typically takes more than two weeks for a money manager selling loans to get cash in exchange for the debt. The concern is that this discrepancy will make it difficult for fund investors to leave the $750 billion leveraged-loan market, where individuals have been playing a bigger role than ever.
“Should investor flows reverse, the mismatch in bank-loan funds could pose a material risk,” Moody’s Investors Service analysts led by Stephen Tu wrote in a July 7 report. “Methods to address sizable investor redemptions in bank loan funds are inadequate.”
In the US Regulation NMS is coming under attack:
The Securities and Exchange Commission’s rules for a national market system have come under scrutiny as lawmakers examine whether high-frequency traders have exploited changes introduced by regulators, exchanges and brokers. The SEC’s rules require all exchanges and brokers to connect to one another to ensure that investors receive the best available prices when they buy shares.
The Senate Banking Committee’s hearing today could intensify pressure on the SEC to change rules it enacted over the past decade. SEC Chair Mary Jo White has said the agency will examine whether its rules have pushed trading away from public markets in favor of private venues such as dark pools.
“The costs associated with maintaining access to each venue, retaining technologists and regulatory staff, and developing increasingly sophisticated risk controls are passed on to investors and result in unnecessary systemic risk,” exchange operator Intercontinental Exchange Inc. (ICE) Chief Executive Officer Jeffrey Sprecher told lawmakers.
Certainly, requirements that everybody connect everywhere are ridiculous; antithetical to the entire concept of competition. It will be quite enough if brokerages disclose the names of the exchanges to which they connect directly and those to which they are indirectly connected by virtue of jitney arrangements with other brokers.
It was an off day for the Canadian preferred share market, with PerpetualDiscounts and DeemedRetractibles both off 2bp and FixedResets down 16bp. The Performance Highlights table is dominated by losing Enbridge issues (which saw yet another new issue announcement today) and winning Power Financial issues (which went ex-dividend). Volume was low.
| 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 | 3.14 % | 3.13 % | 22,246 | 19.41 | 1 | 0.8435 % | 2,533.0 |
| FixedFloater | 4.25 % | 3.53 % | 28,399 | 18.26 | 1 | -0.2677 % | 4,039.5 |
| Floater | 2.88 % | 2.99 % | 46,246 | 19.79 | 4 | -0.4776 % | 2,749.6 |
| OpRet | 4.02 % | -4.85 % | 86,468 | 0.08 | 1 | -0.4297 % | 2,719.0 |
| SplitShare | 4.68 % | 4.00 % | 84,899 | 4.06 | 7 | -0.1139 % | 3,114.3 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.4297 % | 2,486.2 |
| Perpetual-Premium | 5.53 % | -6.52 % | 81,712 | 0.09 | 17 | 0.1068 % | 2,425.1 |
| Perpetual-Discount | 5.25 % | 5.16 % | 113,007 | 15.23 | 20 | -0.0242 % | 2,570.7 |
| FixedReset | 4.39 % | 3.65 % | 202,939 | 4.62 | 76 | -0.1598 % | 2,558.3 |
| Deemed-Retractible | 4.98 % | 1.83 % | 135,252 | 0.14 | 43 | -0.0194 % | 2,547.4 |
| FloatingReset | 2.66 % | 2.15 % | 114,976 | 3.86 | 6 | -0.0329 % | 2,515.0 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| ENB.PR.F | FixedReset | -1.40 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-08 Maturity Price : 23.13 Evaluated at bid price : 24.65 Bid-YTW : 4.09 % |
| ENB.PF.A | FixedReset | -1.29 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-08 Maturity Price : 23.19 Evaluated at bid price : 25.17 Bid-YTW : 4.19 % |
| ENB.PR.B | FixedReset | -1.25 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-08 Maturity Price : 23.23 Evaluated at bid price : 24.56 Bid-YTW : 4.03 % |
| BAM.PF.E | FixedReset | -1.02 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-08 Maturity Price : 23.16 Evaluated at bid price : 25.11 Bid-YTW : 4.10 % |
| PWF.PR.K | Perpetual-Discount | 1.04 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-08 Maturity Price : 23.73 Evaluated at bid price : 24.00 Bid-YTW : 5.15 % |
| PWF.PR.L | Perpetual-Discount | 1.13 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-08 Maturity Price : 24.12 Evaluated at bid price : 24.61 Bid-YTW : 5.16 % |
| CIU.PR.C | FixedReset | 1.43 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-08 Maturity Price : 21.61 Evaluated at bid price : 22.02 Bid-YTW : 3.46 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| ENB.PF.C | FixedReset | 300,831 | RBC crossed blocks of 65,000 and 10,000, both at 25.10. TD crossed blocks of two blocks of 25,000 shares each and one of 34,600 at the same price. Nesbitt crossed 14,800 at the same price again. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-08 Maturity Price : 23.16 Evaluated at bid price : 25.11 Bid-YTW : 4.20 % |
| BNA.PR.F | SplitShare | 191,265 | Recent new issue. I understand there was an inventory blow-out sale today. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2021-10-08 Maturity Price : 25.00 Evaluated at bid price : 24.41 Bid-YTW : 4.91 % |
| ENB.PR.J | FixedReset | 130,410 | Nesbitt crossed blocks of 16,100 and 100,000, both at 25.19. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-08 Maturity Price : 23.25 Evaluated at bid price : 25.19 Bid-YTW : 4.11 % |
| BMO.PR.T | FixedReset | 94,125 | Recent new issue. YTW SCENARIO Maturity Type : Call Maturity Date : 2019-08-25 Maturity Price : 25.00 Evaluated at bid price : 25.40 Bid-YTW : 3.65 % |
| MFC.PR.L | FixedReset | 85,730 | Nesbitt crossed 70,000 at 25.18. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.11 Bid-YTW : 3.83 % |
| HSE.PR.A | FixedReset | 84,044 | Nesbitt crossed 75,000 at 23.14. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-08 Maturity Price : 22.65 Evaluated at bid price : 23.02 Bid-YTW : 3.73 % |
| There were 23 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| CU.PR.E | Perpetual-Discount | Quote: 24.16 – 24.60 Spot Rate : 0.4400 Average : 0.2932 YTW SCENARIO |
| BAM.PR.G | FixedFloater | Quote: 22.35 – 23.09 Spot Rate : 0.7400 Average : 0.5958 YTW SCENARIO |
| IGM.PR.B | Perpetual-Premium | Quote: 25.75 – 26.08 Spot Rate : 0.3300 Average : 0.2295 YTW SCENARIO |
| BAM.PF.A | FixedReset | Quote: 25.78 – 26.02 Spot Rate : 0.2400 Average : 0.1481 YTW SCENARIO |
| MFC.PR.F | FixedReset | Quote: 23.29 – 23.75 Spot Rate : 0.4600 Average : 0.3770 YTW SCENARIO |
| RY.PR.A | Deemed-Retractible | Quote: 25.49 – 25.74 Spot Rate : 0.2500 Average : 0.1682 YTW SCENARIO |