Well, did everybody have a lovely Moron Day? It’s very important to celebrate the fact that there is absolutely no point to a February long weekend. It’s like booking a holiday in Hamilton.
Anyway, DBRS has responded to a policy questionaire on Credit Rating Agencies. There’s the usual blather about how wonderful it is to tick extra boxes thoughtfully prepared by IOSCO, following which we get to the more interesting stuff:
[CRA asks] Is a requirement to disclose all information provided by an issuer and used by a CRA in determining and monitoring a credit rating an appropriate way to address the lack of transparency of asset-backed securities? Should the CSA impose a disclosure obligation directly on issuers of asset-backed securities? Should a disclosure obligation apply regardless of whether such securities have a rating?
To ensure timely and consistent disclosure of useful information in the market, it is critical that disclosure be conducted by the party who is in the best position to determine that the information serves the purpose for which the disclosure is intended. DBRS suggests that the appropriate party for the proposed disclosure requirement would be the originator or the issuer of the information. Similarly, it is not an appropriate role for CRAs to monitor issuers to ensure that other parties meet their responsibilities in respect of the investing public.
As proposed, there may be an inconsistency in the information disclosed if the requirement is crafted in such a way that the information is geared to CRAs for their purposes only. Different CRAs have different information requirements. Moreover, what CRAs receive from issuers and need for rating purposes may be different from what investors require for their purposes. A credit rating is only one factor and not the sole determinant in risk measurement and investment decision making.
The interesting part about this proposal is that essentially it suggests that Regulation FD (National Policy 51-201 in Canada) be rescinded for Asset Backed Paper. Assiduous Readers will remember that I have suggested these policies – which mean that the CRAs get preferential access to material non-public information, that I would go to jail for using in the course of investing – be rescinded in their entirety.
In limiting their proposal to ABS, the regulators are fighting the last war. I have no idea where the next embarrassing scandal is going to come from, but I’ll bet a nickel that it won’t be ABS.
Across the Curve notes that Treasuries were very strong today, just in time for a basketful of new issuance:
The yield on the 2 year note dropped 9 basis points to 0.87 percent. The yield on the 3 year note declined 14 basis points to 1.23 percent. The yield on the 5 year note tumbled 19 basis points to 1.68 percent. The yield on the 10 year note plummeted 22 basis points to 2.67 percent. The yield on the Long Bond danced to the same music and fell 16 basis points to 3.51 percent.
…
Some spoke of the package of securities which the Treasury will announce on Thursday when they will announce the 2 year, the 5 year and the debut performance of the 7 year note. I think they will bring $42 billion, $32 billion and $15 billion respectively. That would be $89 billion of coupons which would be record shattering. (Until next month.)
Canadas were strong too, with the 2-year yield down 8bp and everything else in the low double-digits. Stocks got hammered, both in the US:
U.S. stocks tumbled to a three-month low, extending a global slump, as a record contraction in New York manufacturing spurred concern the government’s stimulus package won’t be enough to curb the deepening recession.
Bank of America Corp., Citigroup Inc. and JPMorgan Chase & Co. each lost 12 percent. Exxon Mobil Corp. was the biggest drag on the Standard & Poor’s 500 Index as oil slid almost 7 percent. General Motors Corp., the largest U.S. carmaker, sank 13 percent as it took its case for more government support to the Treasury Department. Banks led declines in Europe and Asia on concern they may face ratings downgrades and more losses.
… and in Canada …
Canadian stocks fell the most in four weeks as financial and energy companies tumbled on concern the deepening global recession will cause more losses at banks and insurers, and cut demand for the nation’s commodity exports.
Manulife Financial Corp. dropped 11 percent to a six-year low as equities tumbled worldwide, stoking concern insurers face further losses on their stock portfolios. EnCana Corp. slid 5.2 percent after oil prices slumped below $35 a barrel on a report that manufacturing in New York contracted at the fastest pace on record.
Preferreds fell in sympathy with common, but to nowhere near the same extent, a refreshing change from the horror of 4Q08. The fall was led by split-shares, perhaps due to their direct exposure to equity prices, perhaps in response to the mass downgrade.
| 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 | 5.26 % | 3.71 % | 23,435 | 17.94 | 2 | 0.2295 % | 861.9 |
| FixedFloater | 7.24 % | 6.84 % | 75,672 | 14.15 | 7 | 0.1557 % | 1,386.4 |
| Floater | 5.09 % | 4.26 % | 29,125 | 16.93 | 4 | 1.5760 % | 1,031.7 |
| OpRet | 5.25 % | 4.69 % | 137,502 | 3.98 | 15 | -0.2719 % | 2,048.8 |
| SplitShare | 6.40 % | 9.92 % | 68,561 | 4.04 | 15 | -1.9390 % | 1,741.6 |
| Interest-Bearing | 7.09 % | 8.32 % | 32,578 | 0.83 | 2 | -0.9742 % | 1,995.5 |
| Perpetual-Premium | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.5982 % | 1,553.2 |
| Perpetual-Discount | 6.93 % | 7.05 % | 194,387 | 12.49 | 71 | -0.5982 % | 1,430.5 |
| FixedReset | 6.05 % | 5.71 % | 616,023 | 13.96 | 27 | -0.0696 % | 1,819.3 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| LFE.PR.A | SplitShare | -6.88 % | Asset coverage of 1.3+:1 as of January 30 according to the company. Currently rated Pfd-2(low) by DBRS, having somehow evaded the crackdown. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2012-12-01 Maturity Price : 10.00 Evaluated at bid price : 8.12 Bid-YTW : 11.70 % |
| PPL.PR.A | SplitShare | -5.97 % | Asset coverage of 1.3+:1 as of January 30, according to the company. Downgraded to Pfd-3 by DBRS on Friday. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2012-12-01 Maturity Price : 10.00 Evaluated at bid price : 8.50 Bid-YTW : 9.92 % |
| FFN.PR.A | SplitShare | -5.72 % | Asset coverage of 1.1-:1 as of January 30 according to the company. Downgraded to Pfd-5(high) by DBRS on Friday. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2014-12-01 Maturity Price : 10.00 Evaluated at bid price : 6.76 Bid-YTW : 13.73 % |
| POW.PR.B | Perpetual-Discount | -4.61 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-02-17 Maturity Price : 18.20 Evaluated at bid price : 18.20 Bid-YTW : 7.47 % |
| IAG.PR.A | Perpetual-Discount | -3.79 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-02-17 Maturity Price : 16.00 Evaluated at bid price : 16.00 Bid-YTW : 7.33 % |
| CM.PR.E | Perpetual-Discount | -3.38 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-02-17 Maturity Price : 19.17 Evaluated at bid price : 19.17 Bid-YTW : 7.41 % |
| WFS.PR.A | SplitShare | -2.99 % | Asset coverage of 1.1+:1 as of February 5, according to the company. Downgraded to Pfd-4(low) by DBRS on Friday. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2011-06-30 Maturity Price : 10.00 Evaluated at bid price : 8.10 Bid-YTW : 15.64 % |
| FIG.PR.A | Interest-Bearing | -2.76 % | Asset coverage of 1.1-:1 as of February 10, based on Capital units at $1.29 and 0.53 Capital Units per preferred. Downgraded to Pfd-5 by DBRS on Friday. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2014-12-31 Maturity Price : 10.00 Evaluated at bid price : 7.41 Bid-YTW : 13.00 % |
| SLF.PR.B | Perpetual-Discount | -2.70 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-02-17 Maturity Price : 16.20 Evaluated at bid price : 16.20 Bid-YTW : 7.56 % |
| SLF.PR.A | Perpetual-Discount | -2.55 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-02-17 Maturity Price : 16.08 Evaluated at bid price : 16.08 Bid-YTW : 7.54 % |
| BAM.PR.J | OpRet | -2.38 % | YTW SCENARIO Maturity Type : Soft Maturity Maturity Date : 2018-03-30 Maturity Price : 25.00 Evaluated at bid price : 18.06 Bid-YTW : 10.38 % |
| GWO.PR.H | Perpetual-Discount | -2.25 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-02-17 Maturity Price : 16.51 Evaluated at bid price : 16.51 Bid-YTW : 7.50 % |
| POW.PR.D | Perpetual-Discount | -2.04 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-02-17 Maturity Price : 17.74 Evaluated at bid price : 17.74 Bid-YTW : 7.16 % |
| FBS.PR.B | SplitShare | -1.94 % | Asset coverage of 1.0+:1 as of February 12, according to TD. Downgraded to Pfd-4 by DBRS on Friday. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2011-12-15 Maturity Price : 10.00 Evaluated at bid price : 7.06 Bid-YTW : 19.24 % |
| GWO.PR.G | Perpetual-Discount | -1.91 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-02-17 Maturity Price : 18.01 Evaluated at bid price : 18.01 Bid-YTW : 7.36 % |
| MFC.PR.C | Perpetual-Discount | -1.88 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-02-17 Maturity Price : 16.19 Evaluated at bid price : 16.19 Bid-YTW : 7.10 % |
| BMO.PR.H | Perpetual-Discount | -1.82 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-02-17 Maturity Price : 21.07 Evaluated at bid price : 21.07 Bid-YTW : 6.33 % |
| SLF.PR.C | Perpetual-Discount | -1.76 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-02-17 Maturity Price : 15.03 Evaluated at bid price : 15.03 Bid-YTW : 7.56 % |
| DF.PR.A | SplitShare | -1.74 % | Asset coverage of 1.4-:1 as of January 30, according to the company. Downgraded to Pfd-3(low) by DBRS on Friday. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2014-12-01 Maturity Price : 10.00 Evaluated at bid price : 9.01 Bid-YTW : 7.50 % |
| PWF.PR.F | Perpetual-Discount | -1.65 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-02-17 Maturity Price : 18.50 Evaluated at bid price : 18.50 Bid-YTW : 7.19 % |
| BNA.PR.B | SplitShare | -1.58 % | Asset coverage of 1.9-:1 as of January 30 according to the company. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2016-03-25 Maturity Price : 25.00 Evaluated at bid price : 21.21 Bid-YTW : 8.03 % |
| SLF.PR.D | Perpetual-Discount | -1.57 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-02-17 Maturity Price : 15.03 Evaluated at bid price : 15.03 Bid-YTW : 7.56 % |
| BNS.PR.Q | FixedReset | -1.57 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-02-17 Maturity Price : 21.96 Evaluated at bid price : 22.00 Bid-YTW : 4.54 % |
| PWF.PR.K | Perpetual-Discount | -1.52 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-02-17 Maturity Price : 16.88 Evaluated at bid price : 16.88 Bid-YTW : 7.43 % |
| MFC.PR.B | Perpetual-Discount | -1.50 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-02-17 Maturity Price : 17.04 Evaluated at bid price : 17.04 Bid-YTW : 6.97 % |
| NA.PR.M | Perpetual-Discount | -1.44 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-02-17 Maturity Price : 21.20 Evaluated at bid price : 21.20 Bid-YTW : 7.14 % |
| IGM.PR.A | OpRet | -1.36 % | YTW SCENARIO Maturity Type : Soft Maturity Maturity Date : 2013-06-29 Maturity Price : 25.00 Evaluated at bid price : 25.40 Bid-YTW : 5.57 % |
| NA.PR.P | FixedReset | -1.33 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2014-03-17 Maturity Price : 25.00 Evaluated at bid price : 25.26 Bid-YTW : 6.49 % |
| RY.PR.F | Perpetual-Discount | -1.30 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-02-17 Maturity Price : 17.40 Evaluated at bid price : 17.40 Bid-YTW : 6.44 % |
| ALB.PR.A | SplitShare | -1.26 % | Asset coverage of 1.1-:1 as of February 12 according to the company. Downgraded to Pfd-4 by DBRS on Friday. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2011-02-28 Maturity Price : 25.00 Evaluated at bid price : 19.60 Bid-YTW : 18.12 % |
| RY.PR.G | Perpetual-Discount | -1.19 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-02-17 Maturity Price : 17.40 Evaluated at bid price : 17.40 Bid-YTW : 6.51 % |
| CM.PR.H | Perpetual-Discount | -1.18 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-02-17 Maturity Price : 16.69 Evaluated at bid price : 16.69 Bid-YTW : 7.29 % |
| GWO.PR.I | Perpetual-Discount | -1.15 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-02-17 Maturity Price : 15.41 Evaluated at bid price : 15.41 Bid-YTW : 7.45 % |
| SBN.PR.A | SplitShare | -1.09 % | Asset coverage of 1.6+:1 as of February 5 according to Mulvihill. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2014-12-01 Maturity Price : 10.00 Evaluated at bid price : 9.05 Bid-YTW : 7.35 % |
| PWF.PR.E | Perpetual-Discount | -1.07 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-02-17 Maturity Price : 19.35 Evaluated at bid price : 19.35 Bid-YTW : 7.20 % |
| CM.PR.R | OpRet | -1.05 % | YTW SCENARIO Maturity Type : Soft Maturity Maturity Date : 2013-04-29 Maturity Price : 25.15 Evaluated at bid price : 25.50 Bid-YTW : 4.66 % |
| BNS.PR.K | Perpetual-Discount | 1.04 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-02-17 Maturity Price : 18.50 Evaluated at bid price : 18.50 Bid-YTW : 6.57 % |
| BAM.PR.O | OpRet | 1.22 % | YTW SCENARIO Maturity Type : Option Certainty Maturity Date : 2013-06-30 Maturity Price : 25.00 Evaluated at bid price : 20.80 Bid-YTW : 10.11 % |
| ELF.PR.F | Perpetual-Discount | 1.32 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-02-17 Maturity Price : 15.30 Evaluated at bid price : 15.30 Bid-YTW : 8.83 % |
| ELF.PR.G | Perpetual-Discount | 1.35 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-02-17 Maturity Price : 14.25 Evaluated at bid price : 14.25 Bid-YTW : 8.49 % |
| CM.PR.K | FixedReset | 1.55 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-02-17 Maturity Price : 22.25 Evaluated at bid price : 23.00 Bid-YTW : 4.87 % |
| BCE.PR.G | FixedFloater | 1.63 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-02-17 Maturity Price : 25.00 Evaluated at bid price : 15.00 Bid-YTW : 7.05 % |
| TRI.PR.B | Floater | 1.96 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-02-17 Maturity Price : 13.00 Evaluated at bid price : 13.00 Bid-YTW : 4.08 % |
| BAM.PR.K | Floater | 2.50 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-02-17 Maturity Price : 7.80 Evaluated at bid price : 7.80 Bid-YTW : 6.85 % |
| BAM.PR.B | Floater | 2.55 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-02-17 Maturity Price : 8.05 Evaluated at bid price : 8.05 Bid-YTW : 6.63 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| RY.PR.R | FixedReset | 106,339 | Recent new issue. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-03-26 Maturity Price : 25.00 Evaluated at bid price : 25.40 Bid-YTW : 6.00 % |
| TD.PR.G | FixedReset | 97,040 | Recent new issue. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-05-30 Maturity Price : 25.00 Evaluated at bid price : 25.36 Bid-YTW : 6.05 % |
| IAG.PR.C | FixedReset | 64,906 | RBC bought two lots of 10,000 each from Scotia and 25,700 from Desjardins, all at 22.00. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-02-17 Maturity Price : 21.86 Evaluated at bid price : 21.90 Bid-YTW : 6.53 % |
| CM.PR.L | FixedReset | 50,779 | Recent new issue. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-05-30 Maturity Price : 25.00 Evaluated at bid price : 25.41 Bid-YTW : 6.23 % |
| BNS.PR.X | FixedReset | 49,742 | Recent new issue. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-05-25 Maturity Price : 25.00 Evaluated at bid price : 25.26 Bid-YTW : 6.14 % |
| BNS.PR.T | FixedReset | 42,024 | Recent new issue. An amusing limit-scenario – the reset is to 5-Year GOCs +414bp … so, given today’s yields, an investor should not presume it will be called even though it is trading at a premium. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-02-17 Maturity Price : 25.21 Evaluated at bid price : 25.26 Bid-YTW : 6.13 % |
| There were 32 other index-included issues trading in excess of 10,000 shares. | |||