Assiduous Readers will remember that the Fed’s balance sheet has been swollen as it has borrowed from Treasury and lent to … various third parties. The fact that Treasuries are being sold to finance the lending makes the various programmes monetarily neutral and therefore, to a first approximation, non-inflationary (inflation may still result if the process generates false signals regarding use of capital funds, but that’s a second order effect). Today the butcher’s bill came in:
The U.S. Treasury predicted it would borrow this quarter more than three times the amount initially forecast as weaker economic growth and the costs of a new bank rescue package swell the budget deficit.
Borrowing needs will rise to $550 billion in the three months to Dec. 31, compared with the $142 billion predicted in July, the Treasury said in a statement in Washington. That would be more than double the largest ever — a record $244 billion in new marketable debt in the first three months of this year.
I am an enthusiastic supporter of the Fed’s actions, but this is illustrative of the need for fiscal restraint in good times – which has been sorely lacking. At some point – as has happened in Taiwan with insurers and agency paper, as mentioned October 28 – the rest of the world will decide it has quite enough US paper, thank you very much, and then we’re all in trouble.
Econbrowser‘s (admittedly partisan) Menzie Chinn provides a comparison of the McCain and Obama tax ‘n’ stimulus plans:
Dr. Chinn also provides a link to the Committee for a Responsible Federal Budget’s Guide to Stimulus Proposals: The 2008 Presidential Election. I confess I have not investigated campaign or third-party reactions to this analysis – but it makes for good reading!
He also performs calculations based on analyses of the Tax Policy Centre:
I have added a bonus spreadsheet to the post regarding my essay on CPD.
A very strong day for PerpetualDiscounts, but volume returned to normal levels.
| 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. |
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| 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% | 5.54% | 71,455 | 14.92 | 6 | +0.4997% | 959.1 |
| Floater | 6.74% | 6.84% | 48,590 | 12.70 | 2 | +0.9284% | 516.2 |
| Op. Retract | 5.28% | 6.11% | 129,514 | 4.00 | 15 | +0.5423% | 999.9 |
| Split-Share | 6.31% | 10.79% | 58,350 | 3.96 | 12 | +0.1262% | 932.8 |
| Interest Bearing | 8.13% | 14.97% | 61,714 | 3.26 | 3 | -3.4615% | 871.8 |
| Perpetual-Premium | N/A | N/A | N/A | N/A | N/A | N/A | N/A |
| Perpetual-Discount | 6.77% | 6.83% | 178,900 | 12.80 | 71 | +1.0859% | 805.1 |
| Fixed-Reset | 5.35% | 5.13% | 906,342 | 15.13 | 11 | +0.5319% | 1,077.6 |
| Major Price Changes | |||
| Issue | Index | Change | Notes |
| FIG.PR.A | InterestBearing | -7.4074% | Asset coverage of 1.3+:1 based on Capital Unit NAV of 4.88 and 0.71 Capital Units per Preferred. Now with a pre-tax bid-YTW of 12.41% based on a bid of 7.5 and a hardMaturity 2014-12-31 at 10.00. Closing quote of 7.50-12, 5×1. Day’s range of 7.44-24. |
| BNA.PR.A | SplitShare | -6.8519% | Asset coverage of just under 2.8:1 as of September 30 according to the company. Coverage now of 2.1+:1 based on BAM.A at 21.96 and 2.4 BAM.A held per preferred. Now with a pre-tax bid-YTW of 19.84% based on a bid of 20.12 and a hardMaturity 2010-9-30 at 25.00. Compare with BNA.PR.B (10.12% to 2016-3-25) and BNA.PR.C (14.16% to 2019-1-10). Closing quote 20.12-70, 1×1. Day’s range 20.06-22.00. |
| BAM.PR.K | Floater | -6.6790% | |
| PWF.PR.F | PerpetualDiscount | -3.1683% | Now with a pre-tax bid-YTW of 6.77% based on a bid of 19.56 and a limitMaturity. Closing quote 19.56-97, 14X1. Day’s range 20.00-06. |
| MFC.PR.C | PerpetualDiscount | +3.0534% | Now with a pre-tax bid-YTW of 6.83% based on a bid of 16.76 and a limitMaturity. Closing Quote 16.76-25, 7×2. Day’s range of 16.50-75. |
| GWO.PR.I | PerpetualDiscount | +3.2719% | Now with a pre-tax bid-YTW of 6.58% based on a bid of 17.36 and a limitMaturity. Closing Quote 17.36-55, 4×1. Day’s range of 17.31-74. |
| BNS.PR.O | PerpetualDiscount | +3.4722% | Now with a pre-tax bid-YTW of 6.31% based on a bid of 22.35 and a limitMaturity. Closing Quote 22.35-89, 10×5. Day’s range of 22.00-90. |
| PWF.PR.E | PerpetualDiscount | +4.0099% | Now with a pre-tax bid-YTW of 6.60% based on a bid of 21.01 and a limitMaturity. Closing Quote 21.01-49, 2×1. Day’s range of 20.41-21.50. |
| HSB.PR.C | PerpetualDiscount | +4.0099% | Now with a pre-tax bid-YTW of 6.60% based on a bid of 21.01 and a limitMaturity. Closing Quote 18.73-99, 22X7. Day’s range of 18.49-99. |
| GWO.PR.H | PerpetualDiscount | +4.1152% | Now with a pre-tax bid-YTW of 6.96% based on a bid of 17.71 and a limitMaturity. Closing Quote 17.71-69, 11×2. Day’s range of 17.24-18.69. |
| TD.PR.Y | FixedReset | +4.3497% | |
| BNA.PR.B | SplitShare | +4.7726 | See BNA.PR.A, above. Closing quote of 18.66-20.55 (!) 13×7. Day’s range of 18.50-49 |
| W.PR.J | PerpetualDiscount | +4.7953% | Now with a pre-tax bid-YTW of 7.92% based on a bid of 17.92 and a limitMaturity. Closing Quote 17.92-24, 3×1. Day’s range of 17.68-96. |
| RY.PR.A | PerpetualDiscount | +5.2016% | Now with a pre-tax bid-YTW of 6.20% based on a bid of 18.00 and a limitMaturity. Closing Quote 18.00-18, 6×20. Day’s range of 17.15-18.50. |
| W.PR.H | PerpetualDiscount | +5.5882% | Now with a pre-tax bid-YTW of 7.77% based on a bid of 17.95 and a limitMaturity. Closing Quote 17.95-73, 1×1. Day’s range of 17.75-50. |
| LBS.PR.A | SplitShare | +5.5901% | Asset coverage of 1.7+:1 as of October 30 according to Brompton Group. Now with a pre-tax bid-YTW of 9.14% based on a bid of 8.50 and a hardMaturity 2013-11-29 at 10.00. Closing quote of 8.50-00, 2×1. Day’s range of 8.12-00. |
| BAM.PR.B | Floater | +8.0808% | |
| Volume Highlights | |||
| Issue | Index | Volume | Notes |
| RY.PR.L | FixedReset | 418,820 | National Bank crossed 175,000 at 24.70 and RBC bought three blocks of 10,000 each, from anonymous (24.74), Dundee (24.75) and CIBC (24.75). New issue, settled today. |
| GWO.PR.G | PerpetualDiscount | 75,725 | Nesbitt crossed 70,000 at 19.10. Now with a pre-tax bid-YTW of 6.82% based on a bid of 19.36 and a limitMaturity. |
| TD.PR.O | PerpetualDiscount | 25,370 | Now with a pre-tax bid-YTW of 6.65% based on a bid of 18.39 and a limitMaturity. |
| RY.PR.G | PerpetualDiscount | 20,332 | Now with a pre-tax bid-YTW of 6.33% based on a bid of 17.85 and a limitMaturity. |
| RY.PR.D | PerpetualDiscount | 17,500 | Now with a pre-tax bid-YTW of 6.41% based on a bid of 17.61 and a limitMaturity. |
There were eighteen other index-included $25-pv-equivalent issues trading over 10,000 shares today.