The Credit Rating Agencies are now being drawn into the Greece fiasco:
European Union finance ministers are pushing the European Central Bank to develop its own rating system for euro zone countries, German business daily Handelsblatt reported on Wednesday, citing EU finance ministry sources.
The paper quoted one official saying the plan would free the euro zone from its dependency on international rating agencies such as Standard & Poors, Moody’s and Fitch.
…
Fitch and S&P have downgraded Greece into ‘B’ territory and should Moody’s follow suit, banks would no longer be able to exchange Greek government debt for cash in ECB refinancing operations from January 2011.
On the one hand, this is no big deal. Central Banks have always had, and should always have, the power to determine just what constitutes the good collateral they lend against. On the other hand, this could very easily become simply another method of papering over the cracks in the system, prior to the Big Collapse.
I’m always pointing out that despite the reset mechanism, FixedResets are not five-year instruments, which I’ll point out again in the wake of the new TRP FixedReset 4.00%+128. Why not? Well, here’s one example:
Two years after the auction-rate bond market froze, Hawaii has lost about $250 million in market value on $1 billion in student-loan securities sold by a single Citigroup Inc. broker as a cash substitute that the state has had difficulty unloading.
Hawaii purchased half of the securities for its short-term treasury account from Honolulu broker Pete Thompson, 60, in the eight months before the market collapsed, according to Scott Kami, an administrator at the state finance department.
…
Auction-rate securities typically have maturities as long as 40 years and yields that are reset in periodic sales held as frequently as every seven days. As the global credit crisis deepened in 2008, banks that underwrote the obligations reversed decades of support for the market when they declined to bid for the debt.Cash Substitute
The action left purchasers such as Hawaii, which viewed auction-rate debt as a higher-yielding cash substitute, unable to sell without taking losses. Citigroup provided the state with a valuation on Dec. 28 saying securities with a face value of about $1 billion were worth $752 million, according to bank documents.
“It was represented to us that these were liquid investments that we could get out every seven to 10 days,” Kami said in an interview.
Hawaii’s suing. Why these situations are the fault of the salesman and not the moron who bought them in such huge quantities is quite beyond me.
The Federal Budget is a total waste of time and I can’t be bothered with it.
Good volume today, perhaps sparked by the TRP FixedReset 4.00%+128 new issue announcement and the closing of GWO.PR.M, but the market came off, with PerpetualDiscounts down 28bp and FixedResets down 7bp.
| 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 | 2.71 % | 2.81 % | 41,083 | 20.59 | 1 | 1.9598 % | 2,036.1 |
| FixedFloater | 5.33 % | 3.43 % | 41,547 | 19.66 | 1 | 0.2948 % | 2,967.3 |
| Floater | 1.94 % | 1.68 % | 48,522 | 23.41 | 4 | -0.9134 % | 2,374.8 |
| OpRet | 4.89 % | 2.25 % | 104,717 | 0.24 | 13 | -0.2287 % | 2,305.5 |
| SplitShare | 6.37 % | 6.43 % | 129,114 | 3.72 | 2 | 0.3308 % | 2,141.3 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.2287 % | 2,108.2 |
| Perpetual-Premium | 5.89 % | 5.84 % | 132,055 | 6.90 | 7 | -0.3621 % | 1,889.0 |
| Perpetual-Discount | 5.87 % | 5.90 % | 177,232 | 14.03 | 71 | -0.2827 % | 1,797.8 |
| FixedReset | 5.41 % | 3.59 % | 319,392 | 3.73 | 42 | -0.0697 % | 2,191.9 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| CU.PR.B | Perpetual-Premium | -2.49 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2012-07-01 Maturity Price : 25.00 Evaluated at bid price : 25.06 Bid-YTW : 5.95 % |
| PWF.PR.A | Floater | -2.12 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-03-04 Maturity Price : 22.82 Evaluated at bid price : 23.10 Bid-YTW : 1.68 % |
| PWF.PR.L | Perpetual-Discount | -1.69 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-03-04 Maturity Price : 20.91 Evaluated at bid price : 20.91 Bid-YTW : 6.18 % |
| MFC.PR.A | OpRet | -1.44 % | YTW SCENARIO Maturity Type : Soft Maturity Maturity Date : 2015-12-18 Maturity Price : 25.00 Evaluated at bid price : 25.92 Bid-YTW : 3.38 % |
| BAM.PR.E | Ratchet | 1.96 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-03-04 Maturity Price : 21.67 Evaluated at bid price : 20.81 Bid-YTW : 2.81 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| TRP.PR.A | FixedReset | 427,183 | Volume was probably boosted a little by the new issue announcement. Nesbitt bought 14,600 from RBC at 25.90 and 10,000 from anonymous at 25.94 and 50,000 from National at 25.95. RBC bought 20,000 from National at 25.97. Nesbitt crossed 40,000 at 26.00, then another 40,000 at 26.03. Nesbitt bought 10,000 from RBC at 26.03. YTW SCENARIO Maturity Type : Call Maturity Date : 2015-01-30 Maturity Price : 25.00 Evaluated at bid price : 26.03 Bid-YTW : 3.60 % |
| TD.PR.E | FixedReset | 166,335 | TD crossed blocks of 127,100 and 12,000, both at 27.95. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-05-30 Maturity Price : 25.00 Evaluated at bid price : 27.94 Bid-YTW : 3.44 % |
| GWO.PR.M | Perpetual-Discount | 160,180 | New issue settled today. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-03-04 Maturity Price : 24.41 Evaluated at bid price : 24.62 Bid-YTW : 5.92 % |
| BNS.PR.X | FixedReset | 62,407 | National crossed 25,000 at 28.20, then sold 11,000 to RBC at 28.24. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-05-25 Maturity Price : 25.00 Evaluated at bid price : 28.30 Bid-YTW : 3.11 % |
| BMO.PR.O | FixedReset | 60,950 | RBC crossed 50,000 at 28.10. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-06-24 Maturity Price : 25.00 Evaluated at bid price : 28.09 Bid-YTW : 3.48 % |
| TD.PR.I | FixedReset | 58,136 | Nesbitt crossed 40,000 at 28.08. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-08-30 Maturity Price : 25.00 Evaluated at bid price : 28.01 Bid-YTW : 3.51 % |
| There were 48 other index-included issues trading in excess of 10,000 shares. | |||