The Fed has announced:
that it is prepared to undertake a substantial expansion of the Term Asset-Backed Securities Loan Facility (TALF). The expansion could increase the size of the TALF to as much as $1 trillion and could broaden the eligible collateral to encompass other types of newly issued AAA-rated asset-backed securities, such as commercial mortgage-backed securities, private-label residential mortgage-backed securities, and other asset-backed securities. An expansion of the TALF would be supported by the provision by the Treasury of additional funds from the Troubled Asset Relief Program.
The Board’s objective in expanding the TALF would be to provide additional assistance to financial markets and institutions in meeting the credit needs of households and businesses and thus to support overall economic growth in the current period of severe financial strains. Decisions concerning the expansion of the TALF, which will be made in consultation with the Treasury Department, will draw on initial experience in administering the program and the Board’s assessment of the likely effectiveness of possible enhancements to the program in advancing its broad economic goals.
Under the current specification of the TALF, the Federal Reserve Bank of New York will lend to eligible owners of certain AAA-rated asset-backed securities (ABS). The Federal Reserve had previously announced that it would accept AAA-rated asset-backed securities backed by newly and recently originated auto loans, credit card loans, student loans, and SBA-guaranteed small business loans as collateral for TALF loans. The date that the TALF will commence operations will be announced later this month.
They will make credit available against good collateral – exactly what a central bank is supposed to do – but I will note that Across the Curve disagrees:
If I read the literature correctly, I would conclude that the TALF will be financed with a large scoop of funding from the central bank. Maybe I am being rigid in my thinking but that does not seem like something which should properly fall within the purview of the central bank.
This sounds like fiscal policy and not monetary policy and it would seem to me that the proper path would be for the elected representatives of the people should authorize the expenditure of one of the largest pools of money in human history. Allowing the Federal Reserve that much latitude, without a proper grant of authority from Congress seems literally undemocratic.
It also begs the question of Federal Reserve independence. The central bank has surrendered independence as the crisis has unfolded and Congress should step forward and provide a clear demarcation and definition of [roles] for the Treasury and its companion.
I disagree. I take the view that it only becomes fiscal policy if and when credit losses are expected and until then it’s monetary policy. I will presume that Bernanke & Co. are insisting on good enough collateral with high enough haircuts to keep it in the latter camp; and I will defend their authority to make the decision until it has been clearly shown otherwise.
Canadian auto subsidies have attracted notice from a Belgian academic, Johannes Van Biesebroeck, in a VoxEU piece Money for Nothing?:
Firms can draw on a long list of programmes for investment support. As of January 2009, the Ontario government’s web portal for initiatives to attract foreign investors listed 78 programmes offering subsidies or tax credits. Among the most important programmes are the Advanced Manufacturing Investment Strategy ($500 million over five years) geared towards innovation and advanced technologies, Strategic Manufacturing Investment grants (average annual budget of $63 million), and the Next Generation Jobs Fund ($650 million over five years) for green technologies.
Total support from just the four largest Ontario programmes has averaged a staggering $400 million per year, much of it for automotive investments.
…
Government discretion is often viewed with suspicion on political economy grounds, but a pure rules-based approach runs the risk of the winner’s curse if there is competition with other jurisdictions (Van Biesebroeck 2008). The largest subsidy package will be offered by the participant with the most upwardly biased information on potential benefits of the project. When the actual benefits become clear over time, the winner might regret having won.
…
On the day of the announcement, Canadian Press Harris-Decima completed a four-day survey showing strong popular support for a bailout of the carmakers. Supporters outnumbered opponents by a large margin – 56% versus 33% of respondents. This makes it easier to understand why the politicians stepped in. Ontario Premier McGuinty said “Our choice is to passively preside over the demise of the industry in Canada and observe its consolidation in the (US) or to act. We chose to act.” Apart from slowing down the demise, they have not made it clear what they hope to achieve with their actions.
Why do we subsidize them? Because they’re good jobs. Why are they good jobs? Because they’re subsidized.
Here’s a cheery update from the CDO market:
Almost half of all the complex credit products ever built out of slices of other securitised bonds have now defaulted, according to analysts, and the proportion rises to more than two-thirds among deals created at the peak of the cycle.
The defaults have affected more than $300bn worth of these collateralised debt obligations, which were built from bits of other asset backed securities (ABS) such as mortgage bonds, other CDOs and structured bonds, or derivatives of any of these, according to analysts at Wachovia and Morgan Stanley.
…
CDOs of ABS were used increasingly at the peak of the credit bubble to keep the securitisation machine moving by recycling hard to sell bits of subprime mortgage bonds and other risky tranches into new structures with top-notch credit ratings.However, the ratings of these deals proved unsustainable, as evidenced by the fact they have accounted for 92.9 per cent of all 16,587 ratings downgrades globally from all rating agencies since the beginning of last year, according to Morgan Stanley.
The way these complex and risky transactions were exploited at the peak of the bubble can be seen in data from analysts at Wachovia, who reckon that 47.6 per cent of all CDOs of ABS by volume issued since the market substantively began in 2002 have now hit an event of default.
Equity markets expressed extreme disappointment with the Stimulus and Financing package as a whole, shocked that Obama didn’t wave his magic wand and make everything go away. Across the Curve has rather daringly republished a JP Morgan analysis of the Fed’s statements.
Canadian bonds had a reasonably good day, but the pref market simply yawned. Split shares did poorly, presumably due to asset coverage fears.
| 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 | 5.29 % | 3.76 % | 24,059 | 17.82 | 2 | 0.2292 % | 863.0 |
| FixedFloater | 7.30 % | 6.86 % | 65,590 | 13.97 | 7 | 0.4632 % | 1,374.8 |
| Floater | 5.29 % | 4.31 % | 30,821 | 16.75 | 4 | 0.7108 % | 992.2 |
| OpRet | 5.26 % | 4.68 % | 151,129 | 4.00 | 15 | 0.1188 % | 2,044.8 |
| SplitShare | 6.23 % | 9.28 % | 71,123 | 4.07 | 15 | -0.5342 % | 1,788.9 |
| Interest-Bearing | 7.09 % | 8.62 % | 32,919 | 0.85 | 2 | -0.9742 % | 1,995.5 |
| Perpetual-Premium | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.0985 % | 1,564.1 |
| Perpetual-Discount | 6.88 % | 6.94 % | 207,287 | 12.63 | 71 | 0.0985 % | 1,440.5 |
| FixedReset | 6.08 % | 5.72 % | 648,149 | 13.96 | 27 | 0.3857 % | 1,809.4 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| BCE.PR.F | FixedFloater | -3.71 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-02-10 Maturity Price : 25.00 Evaluated at bid price : 14.01 Bid-YTW : 7.53 % |
| ELF.PR.G | Perpetual-Discount | -2.56 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-02-10 Maturity Price : 13.69 Evaluated at bid price : 13.69 Bid-YTW : 8.83 % |
| CL.PR.B | Perpetual-Discount | -2.49 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-02-10 Maturity Price : 21.11 Evaluated at bid price : 21.11 Bid-YTW : 7.54 % |
| BNA.PR.C | SplitShare | -2.12 % | Asset coverage of 1.9-:1 as of January 31 according to the company. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2019-01-10 Maturity Price : 25.00 Evaluated at bid price : 12.00 Bid-YTW : 14.71 % |
| FIG.PR.A | Interest-Bearing | -2.10 % | Asset coverage of 1.1-:1 as of February 6, based on Capital units at $1.49 and 0.53 Capital Units per preferred.. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2014-12-31 Maturity Price : 10.00 Evaluated at bid price : 7.45 Bid-YTW : 12.83 % |
| PPL.PR.A | SplitShare | -1.63 % | Asset coverage of 1.3+:1 as of January 30 according to the company. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2012-12-01 Maturity Price : 10.00 Evaluated at bid price : 9.05 Bid-YTW : 7.96 % |
| ALB.PR.A | SplitShare | -1.41 % | Asset coverage of 1.1+:1 as of February 5 according to Scotia. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2011-02-28 Maturity Price : 25.00 Evaluated at bid price : 19.63 Bid-YTW : 17.84 % |
| WFS.PR.A | SplitShare | -1.38 % | Asset coverage of 1.1+:1 as of January 31 according to Mulvihill. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2011-06-30 Maturity Price : 10.00 Evaluated at bid price : 8.56 Bid-YTW : 12.84 % |
| FTN.PR.A | SplitShare | -1.37 % | Asset coverage of 1.2+:1 as of January 30 according to the company. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2015-12-01 Maturity Price : 10.00 Evaluated at bid price : 7.91 Bid-YTW : 9.62 % |
| BAM.PR.K | Floater | -1.19 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-02-10 Maturity Price : 7.46 Evaluated at bid price : 7.46 Bid-YTW : 7.16 % |
| RY.PR.B | Perpetual-Discount | -1.12 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-02-10 Maturity Price : 17.70 Evaluated at bid price : 17.70 Bid-YTW : 6.68 % |
| BNS.PR.N | Perpetual-Discount | -1.11 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-02-10 Maturity Price : 19.56 Evaluated at bid price : 19.56 Bid-YTW : 6.79 % |
| PWF.PR.K | Perpetual-Discount | -1.10 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-02-10 Maturity Price : 17.11 Evaluated at bid price : 17.11 Bid-YTW : 7.32 % |
| NA.PR.L | Perpetual-Discount | -1.00 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-02-10 Maturity Price : 17.80 Evaluated at bid price : 17.80 Bid-YTW : 6.87 % |
| PWF.PR.A | Floater | 1.07 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-02-10 Maturity Price : 12.25 Evaluated at bid price : 12.25 Bid-YTW : 4.29 % |
| NA.PR.P | FixedReset | 1.12 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2014-03-17 Maturity Price : 25.00 Evaluated at bid price : 25.29 Bid-YTW : 6.43 % |
| RY.PR.I | FixedReset | 1.12 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-02-10 Maturity Price : 22.46 Evaluated at bid price : 22.50 Bid-YTW : 4.63 % |
| BAM.PR.M | Perpetual-Discount | 1.19 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-02-10 Maturity Price : 12.75 Evaluated at bid price : 12.75 Bid-YTW : 9.53 % |
| BMO.PR.M | FixedReset | 1.30 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-02-10 Maturity Price : 21.80 Evaluated at bid price : 21.85 Bid-YTW : 4.48 % |
| W.PR.H | Perpetual-Discount | 1.35 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-02-10 Maturity Price : 19.50 Evaluated at bid price : 19.50 Bid-YTW : 7.16 % |
| CM.PR.E | Perpetual-Discount | 1.37 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-02-10 Maturity Price : 19.95 Evaluated at bid price : 19.95 Bid-YTW : 7.10 % |
| IAG.PR.A | Perpetual-Discount | 1.44 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-02-10 Maturity Price : 16.90 Evaluated at bid price : 16.90 Bid-YTW : 6.93 % |
| HSB.PR.D | Perpetual-Discount | 1.89 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-02-10 Maturity Price : 17.75 Evaluated at bid price : 17.75 Bid-YTW : 7.17 % |
| TRI.PR.B | Floater | 2.07 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-02-10 Maturity Price : 12.30 Evaluated at bid price : 12.30 Bid-YTW : 4.31 % |
| BAM.PR.J | OpRet | 2.14 % | YTW SCENARIO Maturity Type : Soft Maturity Maturity Date : 2018-03-30 Maturity Price : 25.00 Evaluated at bid price : 18.59 Bid-YTW : 9.90 % |
| PWF.PR.L | Perpetual-Discount | 2.49 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-02-10 Maturity Price : 17.70 Evaluated at bid price : 17.70 Bid-YTW : 7.29 % |
| CM.PR.K | FixedReset | 3.21 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-02-10 Maturity Price : 21.95 Evaluated at bid price : 22.50 Bid-YTW : 4.99 % |
| BCE.PR.Z | FixedFloater | 4.85 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-02-10 Maturity Price : 25.00 Evaluated at bid price : 15.99 Bid-YTW : 6.70 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| TD.PR.G | FixedReset | 156,281 | Recent new issue. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-05-30 Maturity Price : 25.00 Evaluated at bid price : 25.01 Bid-YTW : 6.34 % |
| RY.PR.R | FixedReset | 99,545 | Recent new issue. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-03-26 Maturity Price : 25.00 Evaluated at bid price : 25.06 Bid-YTW : 6.29 % |
| BNS.PR.X | FixedReset | 95,276 | Recent new issue. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-05-25 Maturity Price : 25.00 Evaluated at bid price : 25.03 Bid-YTW : 6.32 % |
| CM.PR.L | FixedReset | 81,869 | Recent new issue. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-05-30 Maturity Price : 25.00 Evaluated at bid price : 25.15 Bid-YTW : 6.44 % |
| TD.PR.P | Perpetual-Discount | 68,069 | Nesbitt bought 60,300 from National at 20.24. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-02-10 Maturity Price : 20.10 Evaluated at bid price : 20.10 Bid-YTW : 6.60 % |
| NA.PR.P | FixedReset | 46,630 | Recent new issue. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-03-17 Maturity Price : 25.00 Evaluated at bid price : 25.29 Bid-YTW : 6.43 % |
| There were 29 other index-included issues trading in excess of 10,000 shares. | |||
Was hoping you might have touched on this:
Preferred Share Investment Trust
Short Description:
Price: $10.00 CDN per unit.
Settlement: Expected Late March 2009.
The Portfolio will be actively managed by Catapult Financial Management Inc. (the “Portfolio Manager”), a subsidiary of Aston Hill Financial Inc. Ben Cheng will be the lead portfolio manager responsible for the Portfolio.
Mr. Cheng has over 19 years of investment experience in both fixed income and equity markets
See Catapult Financial Offering Actively-Managed Preferred Share Trust.
Hello Mr Hymas,
Your sage views on this instrument would be appreciated- I tried to understand it from the prospectus but got confused. How does it differ from the Malachite Fund?
Answer.
[…] do: make credit available at punitive rates against good collateral. As most recently discussed on February 10, many commentators, including Across the Curve and Econbrowser, have expressed the fear that the […]