October 23, 2008

The Department of Finance announced today a programme of writing Credit Default Swaps on bank paper – the Canadian Lenders Assurance Facility:

which will provide insurance on the wholesale term borrowing of federally regulated deposit-taking institutions. This initiative will help to secure access to longer-term funds so that Canadian financial institutions can continue lending to consumers, homebuyers and businesses in Canada.

This temporary program will be offered to lenders on commercial terms so there is no expected fiscal cost.

Additional details of the Canadian Lenders Assurance Facility will be released shortly, after consultations with financial institutions.

We can hope that they’re a little better at it than, say, AIG!

There is at least one player shouting that Treasury’s Whack-a-Mole efforts to restore normality to the credit markets are more like Whack-a-Mountain:

Banks getting $125 billion from U.S. taxpayers to unlock the credit crunch are saying they’d rather hoard the money than use it for loans, the head of the largest independent mortgage company said.

Treasury Secretary Henry Paulson is injecting capital into institutions including Bank of America Corp., JPMorgan Chase & Co. and Citigroup Inc. on the expectation they would step up lending and investing to prevent the economic slowdown from getting worse. That isn’t happening, said Lee Farkas, chairman of Ocala, Florida-based Taylor, Bean & Whitaker Mortgage Corp.

Many large banks have told Farkas the U.S. rescue isn’t boosting their interest in offering or expanding credit lines to lenders such as his, even for borrowing secured by “low-risk, highly liquid loans,” he said.

“By their own admission, they’re taking the money and they don’t want to put it to work,” he said in an interview during the Mortgage Bankers Association’s conference in San Francisco. “Every single one you talk to, from the biggest to medium biggest, is saying the same thing, they want to de-lever.”


Sorry, folks! I can’t keep my eyes open any more, and tomorrow could be an interesting day!PerpetualDiscounts were off 22bp on the day and now yield 6.77%, equivalent to 9.48% interest at the standard 1.4x factor. Long corporates are at about 7.2%, so the spread is about 230bp – still hanging in there!

I did update the October 21 performance; and updated the post regarding the new Fixed-Reset Royal Bank issue with not entirely surprising news of what comparison of coupons has done for the prices of extant issues. My guess is that tomorrow will be worse … but I’ll have a better idea at about 4pm…

Update, 2008-10-24: The subindices have been updated:

Note that these indices are experimental; the absolute and relative daily values are expected to change in the final version. In this version, index values are based at 1,000.0 on 2006-6-30.
The Fixed-Reset index was added effective 2008-9-5 at that day’s closing value of 1,119.4 for the Fixed-Floater index.
Index Mean Current Yield (at bid) Mean YTW Mean Average Trading Value Mean Mod Dur (YTW) Issues Day’s Perf. Index Value
Ratchet N/A N/A N/A N/A 0 N/A N/A
Fixed-Floater 5.45% 5.68% 67,134 14.66 6 -1.1212% 948.5
Floater 6.21% 6.28% 45,328 13.49 2 -3.2561% 553.1
Op. Retract 5.33% 6.13% 127,400 4.06 14 -0.0750% 991.6
Split-Share 6.23% 10.42% 57,874 4.02 12 +0.0510% 940.5
Interest Bearing 7.95% 14.32% 57,644 3.36 3 -4.6302% 885.7
Perpetual-Premium 6.72% 6.79% 48,871 12.76 1 +0.6491% 923.9
Perpetual-Discount 6.70% 6.77% 173,511 12.89 70 -0.2289% 808.4
Fixed-Reset 5.31% 5.13% 874,068 15.15 10 -2.3328% 1,081.8

Leave a Reply

You must be logged in to post a comment.