The recession is getting worse more slowly than expected:
Payrolls fell by 345,000, the least in eight months, after a revised 504,000 loss in April, the Labor Department said today in Washington. The jobless rate increased to 9.4 percent, the highest since 1983, in part as more people joined the labor force to look for work.
“The recession is very close to an end,” said Nariman Behravesh, chief economist at IHS Global Insight in Lexington, Massachusetts, whose payrolls forecast matched the closest estimate in a Bloomberg News survey. “The labor market is still pretty awful, but vastly better than it was.”
The jobs number had an immediate effect on Treasuries:
Yields on two-year Treasuries increased 28 basis points to 1.24 percent, the biggest one-day increase since Sept. 20. The price on the benchmark 0.875 percent note maturing in May 2011 fell 17/32, or $5.31 per $1,000 face value to 99 98/32, according to BGCantor Market Data.
Implied yields on eurodollar futures as well as federal fund futures contracts, both used to speculate on changes in central-bank policy, surged, with further-deferred contracts posting the largest increases. The yield on the December 2009 eurodollar contract rose 26 basis points today to 1.26 percent, while the December federal-funds futures contract yield increased 21 basis points to 0.54 percent.
Fed-funds futures contracts, which traded on the Chicago Board of Trade, show traders see a 65.7 percent probability the central bank will lift its target rate for overnight bank borrowing by at least 0.5 percent by November from its current zero-to-0.25 percent range. That’s up from 26.8 percent odds yesterday.
But Across the Curve thinks this is ludicrous:
Someone just pointed out that typically the Federal Reserve does not raise rates and unravel an ease until there has been at least six months of job growth. So any possibility of the FOMC raising rates this year is virtually nil.
The trade today is about position management. The entire world is (was) long the yield curve. Profit taking began and forced more profit taking as investors and traders dis not want to watch profits evaporate.
The Canadian jobs picture was awful, but you will look in vain for any worst-case scenarios in 5-year-old government budget documents to assess the effectiveness of contingency planning.
The Kansas City Fed has released its Spring 2009 edition of TEN, it’s general-readership publication. It reprints a speech by Thomas Hoenig, the President, titled “Too Big has Failed”, which mainly addresses current and future cures, rather than prevention. He does note:
We must also look for other ways to limit the creation and growth of firms that might be considered “too big to fail”.
… without making any suggestions. There’s also an article on the markets in water which many will find of interest; I continue to believe that Cleveland will rise again due to its proximity to the Great Lakes; just maybe not this century.
In these uncertain times, it is difficult for regulators to decide what to do. There’s no rule-book, precedents are scarce and there is a high risk of unintended consequences. It is therefore a pleasure to see that in the case of Bank of America, increased regulatory scrutiny – not to mention increased regulatory bullying, with Hank Paulson as the primary enforcer, as mentioned on May 14 – has achieved its objective:
Bank of America Corp., facing the biggest projected losses among lenders subjected to stress tests, will remake its board by adding two ex-regulators and two former bankers as directors.
The new directors are Susan Bies, 62, a former Federal Reserve Board governor; Donald Powell, 67, an ex-Federal Deposit Insurance Corp. chairman;
Now all they have to do is get rid of those damn bankers…
The preferred market continued its ascent today on continued good volume.
| 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 | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.4643 % | 1,312.1 |
| FixedFloater | 7.20 % | 5.72 % | 30,356 | 15.99 | 1 | 0.0000 % | 2,094.7 |
| Floater | 2.87 % | 3.31 % | 79,520 | 18.89 | 3 | 0.4643 % | 1,639.2 |
| OpRet | 4.99 % | 3.76 % | 137,311 | 0.95 | 14 | 0.1164 % | 2,174.8 |
| SplitShare | 5.91 % | 6.09 % | 53,433 | 4.26 | 3 | 0.4516 % | 1,845.4 |
| Interest-Bearing | 5.92 % | -0.83 % | 26,119 | 0.08 | 1 | 1.4000 % | 2,015.0 |
| Perpetual-Premium | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.1393 % | 1,731.6 |
| Perpetual-Discount | 6.34 % | 6.34 % | 162,399 | 13.44 | 71 | 0.1393 % | 1,594.7 |
| FixedReset | 5.70 % | 4.75 % | 575,869 | 4.43 | 39 | 0.2515 % | 2,002.5 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| BAM.PR.B | Floater | 1.10 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-06-05 Maturity Price : 11.94 Evaluated at bid price : 11.94 Bid-YTW : 3.33 % |
| TD.PR.G | FixedReset | 1.15 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2014-05-30 Maturity Price : 25.00 Evaluated at bid price : 27.31 Bid-YTW : 4.36 % |
| BAM.PR.I | OpRet | 1.17 % | YTW SCENARIO Maturity Type : Soft Maturity Maturity Date : 2013-12-30 Maturity Price : 25.00 Evaluated at bid price : 24.31 Bid-YTW : 6.51 % |
| IAG.PR.C | FixedReset | 1.19 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2014-01-30 Maturity Price : 25.00 Evaluated at bid price : 25.59 Bid-YTW : 5.56 % |
| BMO.PR.K | Perpetual-Discount | 1.27 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-06-05 Maturity Price : 21.29 Evaluated at bid price : 21.58 Bid-YTW : 6.12 % |
| STW.PR.A | Interest-Bearing | 1.40 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2009-07-05 Maturity Price : 10.00 Evaluated at bid price : 10.14 Bid-YTW : -0.83 % |
| ELF.PR.F | Perpetual-Discount | 1.62 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-06-05 Maturity Price : 18.80 Evaluated at bid price : 18.80 Bid-YTW : 7.19 % |
| RY.PR.N | FixedReset | 1.75 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2014-03-26 Maturity Price : 25.00 Evaluated at bid price : 26.80 Bid-YTW : 4.65 % |
| MFC.PR.B | Perpetual-Discount | 1.83 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-06-05 Maturity Price : 18.90 Evaluated at bid price : 18.90 Bid-YTW : 6.18 % |
| BAM.PR.N | Perpetual-Discount | 1.92 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-06-05 Maturity Price : 15.40 Evaluated at bid price : 15.40 Bid-YTW : 7.91 % |
| W.PR.J | Perpetual-Discount | 1.94 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-06-05 Maturity Price : 21.31 Evaluated at bid price : 21.58 Bid-YTW : 6.60 % |
| BAM.PR.M | Perpetual-Discount | 2.24 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-06-05 Maturity Price : 15.51 Evaluated at bid price : 15.51 Bid-YTW : 7.85 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| BAM.PR.P | FixedReset | 310,377 | Recent new issue. YTW SCENARIO Maturity Type : Call Maturity Date : 2019-10-30 Maturity Price : 25.00 Evaluated at bid price : 25.30 Bid-YTW : 6.77 % |
| MFC.PR.E | FixedReset | 127,738 | Recent new issue. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-10-19 Maturity Price : 25.00 Evaluated at bid price : 25.16 Bid-YTW : 5.50 % |
| TD.PR.S | FixedReset | 116,694 | Nesbitt crossed 98,900 at 25.05. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-06-05 Maturity Price : 24.96 Evaluated at bid price : 25.01 Bid-YTW : 4.14 % |
| MFC.PR.D | FixedReset | 106,994 | National crossed 80,000 at 26.80. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-07-19 Maturity Price : 25.00 Evaluated at bid price : 26.78 Bid-YTW : 5.00 % |
| RY.PR.D | Perpetual-Discount | 77,090 | Nesbitt crossed 50,000 at 18.49. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-06-05 Maturity Price : 18.45 Evaluated at bid price : 18.45 Bid-YTW : 6.16 % |
| BMO.PR.N | FixedReset | 65,380 | Desjardins crossed 50,000 at 27.05. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-03-27 Maturity Price : 25.00 Evaluated at bid price : 27.10 Bid-YTW : 4.59 % |
| There were 40 other index-included issues trading in excess of 10,000 shares. | |||