The unfolding story of British commercial property funds, last discussed July 5, continues to add drama to our hum-drum lives:
Henderson Global Investors and Columbia Threadneedle Investments suspended trading in at least 5.3 billion pounds ($6.9 billion) of property funds, taking the number of U.K. asset managers curbing redemptions to five in the wake of Britain’s shock decision to leave the European Union.
…
Henderson said Wednesday it had temporarily suspended its 3.9 billion-pound U.K. Property PAIF fund and feeder funds due to “exceptional liquidity pressures” and the recent suspension of other competitor’s funds. Columbia Threadneedle has also halted its 1.39 billion-pound PAIF and feeder funds, according to a statement.M&G Investments, Aviva Investors and Standard Life Investments have also halted withdrawals in their real estate funds. About 24.5 billion pounds is allocated to U.K. real estate funds, according to the Investment Association.
and:
Canada Life Limited said on Wednesday it was suspending its property funds, becoming the sixth firm this week to do so.
Canada Life said in a notice to investors seen by Reuters that it was suspending its Canlife Property and Canlife UK Property life and pensions funds with effect from 1400 GMT July 5.
The firm said it made the decision due to “ongoing uncertainty around the pricing of commercial property assets, following the vote to leave the EU, and the recent rise in requests to withdraw…from the property funds.”
This is a good reminder for holders of junk funds:
Only about 7 percent of the total commercial real estate market is held in daily-dealing funds, according to the Bank of England. Meanwhile more than 90 percent of all European corporate debt funds, including high-yield bonds, offer daily redemptions, according to Fitch Ratings.
The credit markets had a recent taste for how a liquidity mismatch might play out when in December Third Avenue Management froze withdrawals from a $788 million credit mutual fund, saying it couldn’t meet redemptions without resorting to fire sales. The move triggered a selloff in high-yield bonds and stock markets and prompted other funds to close.
The ECB recently published an ‘Occasional Paper’ titled Shadow banking in the euro area: risks and vulnerabilities in the investment fund sector that discussed the issue:
Investment funds are said to perform liquidity transformation whenever it takes more time to liquidate invested assets than to exchange fund shares for cash. Such liquidity transformation should in general deliver a positive return: investors are able to gain exposure to less liquid, possibly higher yielding assets, while at the same time maintaining access to their funds at short notice.
However, liquidity transformation also carries a financial stability risk similar to the run-risk in deposit-taking institutions. The social cost of liquidity transformation may not be evident until many investors wish to redeem their shares at the same time. Such costs include rising yield spreads in the underlying securities, rising asset liquidation costs, or the inability to sell fund shares if redemptions are suspended. Investors may be able to minimise their individual cost by exiting a fund early rather than late, i.e. before other investors do. Such first-mover advantages can create strategic interactions among investors, including the risk of bank-like runs,30 resulting in higher costs for the system as a whole (see Box 3).
By offering daily callable claims for investing in less liquid instruments, open-end funds may further add to the illusion of liquidity if investors do not properly discount for the liquidity transformation risk.
All this excitement is having an effect on my favourite metric:
Japan and France are leading the way as demand for the safest assets boosts the amount of global bonds with negative yields to $9.8 trillion, according to Bloomberg World Sovereign Bond Indexes. That’s up from $8.35 trillion before Britain voted to leave the European Union last month. The latest new entrants include Japan’s 20-year bonds, and French nine-year securities, which both saw yields drop below zero for the first time in the past 24 hours.
I’m very disappointed with recent developments in US college tuition proposals:
Hillary Clinton is changing her college-affordability plan in an effort to reach Bernie Sanders supporters, proposing the elimination of public in-state tuition for students whose families make less than $125,000.
…
Throughout the Democratic primary campaign, Sanders advocated eliminating tuition at public colleges and universities, something he said could be done at a cost of $75 billion annually, funded by a new Wall Street speculation tax.Clinton said the plan was unworkable and that it didn’t make sense for tax dollars to go toward the tuition of students who can afford to pay, often citing Trump’s children and grandchildren as examples.
…
Her compromise with Sanders, billed by her campaign as incorporating “a key principle” from Sanders’ plan, would eliminate in-state tuition for students for whose families earn less than $125,000. It would be phased in over the course of four years, starting with families that earn up to $85,000 and raising the income threshold by $10,000 a year until 2021.
The first problem is that it’s free. Free stuff gets wasted. I don’t want kids to graduate with crippling debt that destroys their ability to take a few risks with employment; but I don’t want them to spend two years partying because it doesn’t cost anything, either. There should be a direct cost; not enough to cover the whole price, but significant enough that one will be sad if it’s thrown away.
The second problem is that it’s not universal. This bloody means-testing, it’s one of the biggest impediments to self-improvement going. First, say you have family income of $105,000. Well, guess what Junior! You’re not going to college for two years, because then it will be free, compared to $25,000 p.a. now. So that’s a problem with the phase-in. And the problem with means testing is, as always, obvious to anybody with the brains he was born with: if a family makes $120,000 and has a kid at university, then improving their situation to $130,000 will actually cost them money.
Remember the very public Wal-Mart / Visa battle?:
The clock is ticking on Walmart’s pledge to stop accepting Visa cards at its Canadian stores. The retail giant confirmed that starting on July 18, customers will no longer be able to use the credit card at its three locations in Thunder Bay, Ont.
But the Visa ban may never come to your neighbourhood Walmart, a business and economics expert tells CBC News.
Carleton University professor Ian Lee believes the retailer is conducting a slow, strategic rollout because it expects to reach a compromise with Visa — long before Walmart has to drop the credit card from all its Canadian stores.
“It’s very deliberate, it’s very calculated,” says Lee. “They’re playing a high-stakes game of chicken.”
Well, here’s a bit of news some might consider related:
Wal-Mart will now let you pay with its phone app at all 4,600 stores nationwide.
The effort is part of Wal-Mart’s strategy to make shopping easier and faster, while learning more about consumer behaviour.
With Wal-Mart Pay, the cashier scans a QR code on the phone screen to charge a credit, debit or Wal-Mart gift card linked with the account. It differs from Apple, Samsung and Android Pay, which involves tapping your phone next to a payment machine with a wireless technology called NFC.
In December, Wal-Mart said it would develop its own digital wallet rather than honour existing systems from Apple and others, though Wal-Mart said it isn’t ruling out third-party wallets in the future.
Retailers have been pushing their own systems in part because they retain control. Daniel Eckert, senior vice-president of services at Wal-Mart U.S., says data from the app will be used to improve the shopping experience. One way, he said, would be to use past shopping behaviour to build a personalized shopping list. The customer could then delete or add items. He said such features would be done only with a customer’s permission.
PerpetualDiscounts now yield 5.35%, equivalent to 6.96% interest at the standard equivalency factor of 1.3x. Long corporates now yield 3.65% (!) so the pre-tax interest-equivalent spread is now about 330bp, a significant widening from the 310bp reported June 22.
| 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 | 0.0181 % | 1,654.5 |
| FixedFloater | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.0181 % | 3,022.5 |
| Floater | 4.93 % | 4.69 % | 90,986 | 16.09 | 4 | 0.0181 % | 1,741.9 |
| OpRet | 4.85 % | 1.69 % | 38,368 | 0.15 | 1 | 0.0793 % | 2,841.4 |
| SplitShare | 5.14 % | 5.63 % | 94,167 | 2.36 | 5 | 0.0242 % | 3,350.4 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.0242 % | 2,614.1 |
| Perpetual-Premium | 5.50 % | -8.30 % | 78,484 | 0.09 | 12 | 0.0333 % | 2,655.3 |
| Perpetual-Discount | 5.33 % | 5.35 % | 100,932 | 14.86 | 26 | -0.0023 % | 2,769.5 |
| FixedReset | 5.19 % | 4.46 % | 151,078 | 7.17 | 88 | -0.6519 % | 1,953.2 |
| Deemed-Retractible | 5.07 % | 5.21 % | 127,949 | 4.88 | 33 | -0.1797 % | 2,730.2 |
| FloatingReset | 3.02 % | 5.05 % | 33,275 | 5.17 | 11 | -0.1977 % | 2,077.1 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| SLF.PR.J | FloatingReset | -3.75 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 12.07 Bid-YTW : 11.60 % |
| BAM.PR.S | FloatingReset | -3.33 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-07-06 Maturity Price : 14.50 Evaluated at bid price : 14.50 Bid-YTW : 4.85 % |
| BAM.PR.X | FixedReset | -3.20 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-07-06 Maturity Price : 13.00 Evaluated at bid price : 13.00 Bid-YTW : 4.77 % |
| MFC.PR.F | FixedReset | -2.88 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 13.51 Bid-YTW : 10.38 % |
| TRP.PR.A | FixedReset | -2.21 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-07-06 Maturity Price : 13.69 Evaluated at bid price : 13.69 Bid-YTW : 4.85 % |
| FTS.PR.M | FixedReset | -2.11 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-07-06 Maturity Price : 18.60 Evaluated at bid price : 18.60 Bid-YTW : 4.39 % |
| IFC.PR.C | FixedReset | -2.02 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 17.00 Bid-YTW : 8.63 % |
| IFC.PR.A | FixedReset | -1.99 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 14.26 Bid-YTW : 10.54 % |
| FTS.PR.K | FixedReset | -1.91 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-07-06 Maturity Price : 16.98 Evaluated at bid price : 16.98 Bid-YTW : 4.17 % |
| TRP.PR.F | FloatingReset | -1.85 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-07-06 Maturity Price : 12.71 Evaluated at bid price : 12.71 Bid-YTW : 4.77 % |
| BAM.PR.R | FixedReset | -1.83 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-07-06 Maturity Price : 15.02 Evaluated at bid price : 15.02 Bid-YTW : 4.86 % |
| BAM.PF.E | FixedReset | -1.82 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-07-06 Maturity Price : 17.83 Evaluated at bid price : 17.83 Bid-YTW : 4.78 % |
| HSE.PR.A | FixedReset | -1.60 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-07-06 Maturity Price : 11.09 Evaluated at bid price : 11.09 Bid-YTW : 5.27 % |
| MFC.PR.M | FixedReset | -1.43 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 17.87 Bid-YTW : 8.12 % |
| HSE.PR.G | FixedReset | -1.38 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-07-06 Maturity Price : 19.23 Evaluated at bid price : 19.23 Bid-YTW : 5.50 % |
| BAM.PR.Z | FixedReset | -1.38 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-07-06 Maturity Price : 18.59 Evaluated at bid price : 18.59 Bid-YTW : 4.93 % |
| BAM.PF.G | FixedReset | -1.34 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-07-06 Maturity Price : 19.13 Evaluated at bid price : 19.13 Bid-YTW : 4.78 % |
| BAM.PF.F | FixedReset | -1.31 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-07-06 Maturity Price : 18.85 Evaluated at bid price : 18.85 Bid-YTW : 4.82 % |
| BMO.PR.Q | FixedReset | -1.29 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 19.90 Bid-YTW : 6.21 % |
| BAM.PF.B | FixedReset | -1.21 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-07-06 Maturity Price : 17.14 Evaluated at bid price : 17.14 Bid-YTW : 4.93 % |
| PWF.PR.P | FixedReset | -1.21 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-07-06 Maturity Price : 13.10 Evaluated at bid price : 13.10 Bid-YTW : 4.26 % |
| TRP.PR.C | FixedReset | -1.20 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-07-06 Maturity Price : 11.51 Evaluated at bid price : 11.51 Bid-YTW : 4.65 % |
| MFC.PR.H | FixedReset | -1.18 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.00 Bid-YTW : 6.26 % |
| BAM.PF.A | FixedReset | -1.13 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-07-06 Maturity Price : 18.42 Evaluated at bid price : 18.42 Bid-YTW : 4.90 % |
| NA.PR.W | FixedReset | -1.10 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-07-06 Maturity Price : 17.02 Evaluated at bid price : 17.02 Bid-YTW : 4.42 % |
| TRP.PR.G | FixedReset | -1.10 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-07-06 Maturity Price : 18.00 Evaluated at bid price : 18.00 Bid-YTW : 5.05 % |
| CU.PR.C | FixedReset | -1.07 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-07-06 Maturity Price : 16.67 Evaluated at bid price : 16.67 Bid-YTW : 4.56 % |
| BAM.PR.T | FixedReset | -1.01 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-07-06 Maturity Price : 14.75 Evaluated at bid price : 14.75 Bid-YTW : 5.03 % |
| GWO.PR.N | FixedReset | 1.20 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 14.30 Bid-YTW : 9.50 % |
| IAG.PR.G | FixedReset | 1.31 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 18.55 Bid-YTW : 7.73 % |
| PWF.PR.O | Perpetual-Premium | 1.32 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2016-08-05 Maturity Price : 25.75 Evaluated at bid price : 25.95 Bid-YTW : -8.30 % |
| TRP.PR.H | FloatingReset | 7.21 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-07-06 Maturity Price : 9.81 Evaluated at bid price : 9.81 Bid-YTW : 4.54 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| NA.PR.A | FixedReset | 107,191 | YTW SCENARIO Maturity Type : Call Maturity Date : 2021-08-15 Maturity Price : 25.00 Evaluated at bid price : 25.91 Bid-YTW : 4.70 % |
| RY.PR.H | FixedReset | 107,120 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-07-06 Maturity Price : 18.26 Evaluated at bid price : 18.26 Bid-YTW : 4.15 % |
| TD.PF.G | FixedReset | 105,969 | YTW SCENARIO Maturity Type : Call Maturity Date : 2021-04-30 Maturity Price : 25.00 Evaluated at bid price : 26.44 Bid-YTW : 4.10 % |
| TD.PF.C | FixedReset | 58,020 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-07-06 Maturity Price : 17.94 Evaluated at bid price : 17.94 Bid-YTW : 4.16 % |
| POW.PR.D | Perpetual-Discount | 30,900 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-07-06 Maturity Price : 23.22 Evaluated at bid price : 23.52 Bid-YTW : 5.32 % |
| BAM.PR.T | FixedReset | 27,878 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-07-06 Maturity Price : 14.75 Evaluated at bid price : 14.75 Bid-YTW : 5.03 % |
| There were 23 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| SLF.PR.J | FloatingReset | Quote: 12.07 – 12.75 Spot Rate : 0.6800 Average : 0.5738 YTW SCENARIO |
| FTS.PR.K | FixedReset | Quote: 16.98 – 17.29 Spot Rate : 0.3100 Average : 0.2065 YTW SCENARIO |
| BAM.PR.S | FloatingReset | Quote: 14.50 – 15.20 Spot Rate : 0.7000 Average : 0.6046 YTW SCENARIO |
| GWO.PR.F | Deemed-Retractible | Quote: 25.70 – 26.20 Spot Rate : 0.5000 Average : 0.4166 YTW SCENARIO |
| BAM.PF.H | FixedReset | Quote: 25.90 – 26.14 Spot Rate : 0.2400 Average : 0.1663 YTW SCENARIO |
| HSE.PR.C | FixedReset | Quote: 17.41 – 17.74 Spot Rate : 0.3300 Average : 0.2584 YTW SCENARIO |
James – here’s a wrinkle to your rant about Hilliary’s proposal. Free isn’t necessarily the problem – you are forgetting (or ignoring) opportunity cost. Students would be delaying their entry to workforce and giving up present wages.
Well, not so bad for the party crowd that lives in their folk’s basement and that doesn’t want to get on with it, you might say. For them, sure but that is pretty small group relatively speaking.
How about making it free only if they pass? Party hard, flunk out, pay up.
As for means testing, I couldn’t agree more whole-heartedly. That is just bad policy.
I don’t think it is simply a matter of making sure students are motivated to pass their courses.
Speaking from personal experience, when education is free or very low cost, it makes it easier to not think your choices through as carefully. I have two degrees, a completely useless degree in Philosophy obtained when tuition was very inexpensive back in the late 70’s. Not surprisingly, philosophy didn’t pay the bills so I went back to university to get a computer science degree a few years later.
“…the problem with means testing is, as always, obvious to anybody with the brains he was born with: if a family makes $120,000 and has a kid at university, then improving their situation to $130,000 will actually cost them money. ”
Finally, someone understands how foolish means testing is..
It’s no different with OAS means testing or the Age 65 tax credit. Everyone will try and game the system. There are so many better ways than means testing.
ltr
Students would be delaying their entry to workforce and giving up present wages.
Yes, that’s another cost when people go to university for the wrong reasons.
How about making it free only if they pass? Party hard, flunk out, pay up.
I’m not sure if that works. Anybody who goes into something – whether it’s marriage, an account with a stockbroker, university – goes into it with the idea that things are going to work out … somehow! I’m not sure that such a system would dissuade the marginal entrants from entering.
As for means testing, I couldn’t agree more whole-heartedly.
Glad to hear it! Sometimes I feel a little lonely when spouting my views on this issue.
Speaking from personal experience, when education is free or very low cost, it makes it easier to not think your choices through as carefully.
Yes, I think the cost has to be set such that it stings a little. Obviously, what stings Joe Lunchbucket will be a different number than what stings Reginald Plutocrat III … but RP3 is going to university no matter what the cost.
I should make it clear that there should also be scholarships available, such that nobody of genuine academic merit is barred due to financial considerations.
There are so many better ways than means testing.
Yes. I favour a national minimum income, paid by instituting a universal refundable tax credit. Start it small and increase it steadily. Fund it by (i) reducing social welfare benefits (ii) increasing marginal tax rates and (iii) capping the amount eligible for the capital gains and dividend preferential rates.