PrefBlog

I noted yesterday that there had been a huge rally in junk bonds fuelled – at least in part – by issuer bids. The same thing is happening in asset-backeds:

European companies have increased purchases of their asset-backed bonds tenfold this year, taking advantage of prices that slumped 70 percent and signaling to investors that the worst of the recession may be over.

HSBC Holdings Plc, Europe’s biggest bank, is offering to buy as much as 4 billion pounds ($6.5 billion) of its notes secured by company loans. Canary Wharf Group Plc bought 119.8 million pounds of debt backed by offices in London’s second financial district in April.

All told, more than $1.8 billion of the debt was repurchased through public auctions this year by banks, real estate companies and the owner of the Greene King pub chain, according to data compiled by Bloomberg. That’s up from $164 million in all of 2008.

The Bank of Canada kept the overnight rate at 25bp:

Information received since the Bank’s April Monetary Policy Report (MPR) is broadly consistent with the Bank’s medium-term outlook for output and inflation in Canada. The economy is undergoing major restructuring in a number of sectors. The already significant output gap will continue to widen through the third quarter, putting downward pressure on inflation. The Bank continues to expect that the global and Canadian recoveries will be more muted than usual.

In recent weeks, financial conditions and commodity prices have improved significantly, and consumer and business confidence have recovered modestly. If the unprecedentedly rapid rise in the Canadian dollar (which reflects a combination of higher commodity prices and generalized weakness in the U.S. currency) proves persistent, it could fully offset these positive factors.

The outlook is subject to considerable uncertainty. While the underlying macroeconomic risks are roughly balanced, the Bank judges that, as a consequence of operating at the effective lower bound, the overall risks to its inflation projection remain tilted slightly to the downside.

Conditional on the outlook for inflation, the target overnight rate can be expected to remain at its current level until the end of the second quarter of 2010 in order to achieve the inflation target.

After today’s gains, PerpetualDiscounts now yield 6.31%, equivalent to 8.83% interest at the standard equivalency factor of 1.4x. With all these gains they still lagged long corporates, which now yield 6.7%, so the pre-tax interest-equivalent spread is now about 213bp.

This entry was posted on Thursday, June 4th, 2009 at 7:40 pm and is filed under Market Action. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.