January 28, 2010

The first exception to Comrade Peace-Prize’s vengeful tax on banks will probably be short-term funding through repos:

The administration wants to recover government fees spent during the financial crisis through a levy on banks, which is projected to recoup at least $90 billion over 10 years. The fee, proposed as a 15-basis-point tax on liabilities other than insured deposits, could make repo transactions money losers for firms because profit margins on trades may be less than the fee.

“One of the modifications I expect would be to exclude Treasury repo, in part because the Fed wants to drain reserves using the repo market,” said Joseph Abate, a money market strategist in New York at Barclays Plc, one of the 18 primary dealers that trade with the central bank. “The 15 basis points fee would obviously make the banks less willing to participate in those transactions.”

Government policy makers have acted to shield the repo market in the past. The House of Representatives passed a financial overhaul bill in December that would penalize fully secured creditors if a systemically important financial firm failed, after carving out an exemption for trades involving Treasury securities.

Bernanke’s appointment to a second term was confirmed by the senate, 70-30.

As a public service, The Toronto Star and the Toronto Police came together this week to illustrate for the man in the street the realities of regulation:

  • A statistical blip is dressed up as a trend in order to sell newspapers
  • Regulators take stern action to Show Who’s Boss
  • Things get back to normal

I know one ETF that’s going to show a rather large tracking error this month …. on the month-to-date, the TXPR Total Return Index Value is -0.32%, while CPD is -0.53%. Allowing 4bp for their fees, that means that their execution of the index rebalancing cost them about 17bp. Given $393-million under management, that comes to about $668,000.

It wasn’t much of day for the Canadian preferred share market, with PerpetualDiscounts down 5bp on the day while FixedResets gained 2bp. There are only three entries on the Performance Highlights table, so individual issues were reasonably well behaved, while volume remained at reasonably normal levels.

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 0.3095 % 1,722.4
FixedFloater 5.58 % 3.67 % 36,808 19.43 1 -0.0513 % 2,835.0
Floater 2.28 % 2.63 % 114,052 20.68 3 0.3095 % 2,151.7
OpRet 4.84 % -4.07 % 114,593 0.09 13 0.0886 % 2,319.4
SplitShare 6.36 % 0.32 % 154,538 0.08 2 -0.1313 % 2,113.4
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0886 % 2,120.8
Perpetual-Premium 5.82 % 5.67 % 152,395 13.73 12 -0.0655 % 1,888.9
Perpetual-Discount 5.76 % 5.81 % 173,824 14.18 63 -0.0473 % 1,828.9
FixedReset 5.43 % 3.61 % 329,364 3.82 42 0.0153 % 2,178.7
Performance Highlights
Issue Index Change Notes
IAG.PR.C FixedReset -1.43 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-01-30
Maturity Price : 25.00
Evaluated at bid price : 26.86
Bid-YTW : 4.29 %
ENB.PR.A Perpetual-Premium -1.11 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-01-28
Maturity Price : 24.80
Evaluated at bid price : 25.02
Bid-YTW : 5.58 %
BMO.PR.M FixedReset -1.04 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-09-24
Maturity Price : 25.00
Evaluated at bid price : 25.95
Bid-YTW : 3.73 %
Volume Highlights
Issue Index Shares
Traded
Notes
TD.PR.G FixedReset 205,147 RBC crossed blocks of 40,000 and 120,000 shares, both at 27.85. Nesbitt bought 20,000 from anonymous at 27.90.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-05-30
Maturity Price : 25.00
Evaluated at bid price : 27.85
Bid-YTW : 3.44 %
TRI.PR.B Floater 133,700 Nesbitt crossed blocks of 54,500 and 75,000, both at 21.80.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-01-28
Maturity Price : 21.55
Evaluated at bid price : 21.81
Bid-YTW : 1.78 %
TD.PR.P Perpetual-Discount 86,800 TD crossed 82,700 at 24.06.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-01-28
Maturity Price : 23.61
Evaluated at bid price : 23.81
Bid-YTW : 5.54 %
TD.PR.S FixedReset 86,556 RBC crossed 80,000 at 26.25.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-08-30
Maturity Price : 25.00
Evaluated at bid price : 26.33
Bid-YTW : 3.35 %
CM.PR.M FixedReset 75,400 RBC bought 25,000 from Nesbitt at 27.75, then crossed 25,000 at the same price.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-08-30
Maturity Price : 25.00
Evaluated at bid price : 27.75
Bid-YTW : 3.89 %
BAM.PR.R FixedReset 60,430 Recent new issue.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-01-28
Maturity Price : 23.20
Evaluated at bid price : 25.35
Bid-YTW : 4.73 %
There were 34 other index-included issues trading in excess of 10,000 shares.

3 Responses to “January 28, 2010”

  1. pugwash says:

    Good Morning James,

    The discussion ten days ago on this excellent blog about the impact of tax on premium bonds led me to consider if there is there a tax downside to owning premium resets.

    How is the capital loss between the purchase price of say $28 in todays market and the call price of $25 dealt with?

    Not many of us have capital gains to use as an offset!

    cheers

    puggy

  2. […] Reader pugwash asked on another thread: The discussion ten days ago on this excellent blog about the impact of tax on premium bonds led me […]

  3. […] Assiduous Reader pugwash asked on another thread: […]

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