PrefBlog

Berlusconi is hardly considered an elder statesman, but he’s indicative of the mood:

Former Premier Silvio Berlusconi said Italy should say “ciao, euro” if the European Central Bank doesn’t start printing money to tackle the debt crisis and Germany should quit the single currency if it won’t back a bolder role for ECB.

“The economic crisis can’t be solved” in Italy, Berlusconi said in comments posted on his party’s website today. He called on Prime Minister Mario Monti to “change his political line” and lobby European leaders to back a money- printing campaign by the Frankfurt-based ECB. If the central bank doesn’t become a “lender of last resort,” Italy should say “ciao, euro,” the former premier said.

The malaise may spread to America:

U.S. stocks tumbled, erasing the 2012 advance in the Dow Jones Industrial Average, as employers added the fewest workers in a year, the unemployment rate rose while manufacturing output shrank in Europe and slowed in China.
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Equities slumped as American employers in May added the fewest workers in a year and the unemployment rate unexpectedly increased as job-seekers re-entered the workforce. Payrolls climbed by 69,000 last month, less than the most-pessimistic forecast in a Bloomberg News survey, after a revised 77,000 gain in April that was smaller than initially estimated. The median estimate called for a 150,000 May advance. The jobless rate rose to 8.2 percent from 8.1 percent, while hours worked declined.

The Treasury market was pleased:

The benchmark 10-year yield fell nine basis points, or 0.09 percentage point, to 1.47 percent in New York time, according to Bloomberg Bond Traders prices. Thirty-year bond yields declined nine basis points to 2.55 percent, reaching 2.5089 percent, below the record 2.5090 percent on Dec. 18, 2008, according to Federal Reserve figures beginning in 1953.

Things are going the other way in Spain:

Spain’s campaign to cajole the European Central Bank into buying its bonds is backfiring.

The nation’s 10-year borrowing cost has jumped more than half a point to 6.62 percent since Jaime Garcia-Legaz, the deputy minister for trade, became the country’s first official to urge the ECB to support its bonds on April 13. Yield increases accelerated after May 24 when Prime Minister Mariano Rajoy signalled that Spain’s debt sustainability may be in danger, and peaked at 6.70 percent on May 30, moving closer to the 7 percent level that forced Greece, Portugal and Ireland to seek outside aid.

The morons at the Toronto Water department have given the city another black eye:

Subway service around Toronto’s Union Station remains suspended Friday evening after an apparent sewer back-up or break sent water gushing into Canada’s busiest rail hub.
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The flooding has spread to the PATH system, closing the portion of the underground retail concourse south of Wellington Street, Mr. Ross added.

The scene around Union Station Friday was chaotic. Toronto police cars with lights flashing shut down the section of Front Street from York to Yonge streets.

Will wonders never cease? There’s a prominent Republican speaking halfway reasonably:

Former Florida Governor Jeb Bush, in a break with his party, said he could support tax increases to help reduce the federal government’s budget deficit.

The brother of former President George W. Bush told a congressional panel in Washington today that he could back a theoretical deficit-reduction package that would include $1 in tax increases for every $10 in spending cuts.

Fortunately, there are other Republicans maintaining the party’s reputation by supporting Al-Qaeda’s thesis that there’s some kind of religious war going on:

The opponents of the Tennessee mosque have fought for two years to stop construction. During lengthy hearings in 2010, they presented testimony that in effect put Islam on trial. A string of witnesses questioned whether Islam is a legitimate religion and promoted a theory that American Muslims want to replace the Constitution with extremist Islamic law and the mosque was a part of that plot.
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The mosque also became an issue in a local congressional race, with Republican candidate Lou Ann Zelenik calling it a threat to the state’s moral and political foundation.

Later, a dump truck on the site was burned in what federal officials determined was arson.

It was a mixed day for the Canadian preferred share market, with PerpetualPremiums gaining 10bp, FixedResets up 3bp and DeemedRetractibles down 14bp. Volatility was good. Volume was light.

It would appear that it is the banks who shave the Spanish barber:

Bankia group risks dragging the rest of Spain into its vortex

As Spain’s third-biggest bank asks Prime Minister Mariano Rajoy’s government for 19 billion euros ($24 billion), international investors are tallying the potential cost for the rest of the industry and betting he won’t be able to foot the bill. With foreign investors shunning Spanish debt, leaving national banks to fund the government, the nation’s 10-year borrowing costs compared with Germany’s are near a record.

Spain needs to bail out lenders still reeling from the collapse of the real-estate boom while its own access to funding increasingly depends on domestic banks being kept afloat by the European Central Bank’s refinancing operations. Rising borrowing costs are putting pressure on Rajoy’s five month-old government to join Greece, Portugal and Ireland in seeking a rescue that would be the European Union’s biggest.

There’s capital flight in Spain:

More than €97-billion in capital fled Spain in the first quarter of the year as the country’s crisis escalated along with the troubles of the euro zone.

That stunning number, published today by the country’s central bank and reported in The Financial Times, represents almost 10 per cent of Spain’s gross domestic product.

I recall William Shirer stressed capital flight as a destabilizing factor of the French Third Republic. But that’s just panic.

There is NO PANIC. Let me repeat that: there is NO PANIC! There is absolutely NO PANIC anywhere and anybody who might panic will be shot, not that anybody would panic:

The International Monetary Fund said it is not preparing financial aid for Spain and the country denied any talks about a bailout even as its borrowing costs approach euro-era records.

“There’s been no request for financial assistance from Spain and the IMF is not making plans for financial assistance to Spain,” Gerry Rice, the IMF’s director of external relations, told reporters in Washington today.

Hate your neighbors? Want to take revenge for that time their cat peed on your lawn? The good folks of the federal government are offering a new way to denounce your neighbors!

The Copyright Board of Canada has, for the first time, decided to charge fees to anyone who uses recorded music as part of a public event. That means anyone who plans on using tunes to get the party started will need to dig a little deeper before hitting play on the iPod.

The new rules include any event in which music is played – weddings, ice shows, street parties, circuses, parades and karaoke bars are all named in the official notice from the country’s copyright board.
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Re:Sound does employ inspectors, but would only undertake an inspection if complaints were received.

Denounce your neighbor today and help to bring back Stalinism!

S&P affirmed CSE.PR.A:

• We are affirming our ratings, including our ‘BB+’ long-term corporate credit rating, on Capstone Infrastructure Corp.
• In addition, we are removing the ratings from CreditWatch with developing implications.
• The affirmation and CreditWatch removal reflects our view of the progress that the company has made in regard to the various initiatives to address its liquidity.
• The stable outlook reflects our view that Capstone benefits from contracted revenue and insulation from electricity demand and price risks
  provided by power purchase agreements with investment-grade off-takers.

We could raise the ratings if the company takes steps to improve its liquidity (for example, through a reduction in its common share dividend) such that it is consistent with our criteria description of “adequate” and demonstrates concrete steps in recontracting the expiring PPAs while maintaining or improving its significant financial risk profile. We expect the company to continue to focus its growth strategy on assets with cash-flow predictability supported by either favorable contracts or regulation.

We could consider lowering the ratings should Capstone’s overall cash flow quality weaken materially from its moderate level of stability. This could come from major operational disruptions in its generation facilities or acquisition of assets with materially higher cash flow variability. In addition, we could consider a negative rating action if we expect the company’s cash-flow coverage measures to weaken materially, with partially consolidated cash flow to interest falling below 2.7x or partially consolidated cash flow to total recourse debt falling below 20% on a sustained basis, in accordance with our criteria for project developers. This could happen if it increases its reliance on debt financing to support its growth initiatives or its distribution. In addition, failure to renew expiring PPAs or replace them with acquisitions of other contracted assets could also lead to a downgrade in the medium term.

DBRS affirmed DGS.PR.A at Pfd-3:

DBRS has today confirmed the rating of the Preferred Shares of Dividend Growth Split Corp. (the Company) at Pfd-3. In December 2007, the Company issued approximately 1.5 million Preferred Shares (at $10 each) and an equal number of Class A Shares (at $15 each). The scheduled redemption date for both classes of shares issued is November 30, 2014.
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Since the rating was last confirmed in May 2011, following the completion of a merger of the Company with Brompton Equity Split Corp., the net asset value (NAV) of the Company has remained fairly stable, with downside protection fluctuating between 38% and 47%. The current downside protection (as of April 26, 2012) is approximately 42%. Based on the current yields of the underlying securities in the Portfolio, the dividend coverage ratio is approximately 1.43 times as of April 30, 2012, so the dividends received on the Portfolio fully cover the Preferred Share distributions.

The Canadian preferred share market closed the month with a mildly negative day, with PerpetualPremiums flat, FixedResets off 4bp and DeemedRetractibles down 6bp. Volatility was good. Volume was average.

Spain is cutting off welfare recipients:

Spanish renewable-energy companies that once got Europe’s biggest subsidies are deserting the nation after the government shut off aid, pushing project developers and equipment-makers to work abroad or perish.

From wind-turbine maker Gamesa Corp. Tecnologica SA (GAM) to solar park developer T-Solar Global SA, companies are locked out of their home market for new business. These are the same suppliers that spearheaded more than $69 billion of wind and solar projects since 2004 that today supply more than 50 percent of Spain’s power demand on the most breezy and sunny days.

But fear not, subsidy fans! Germany’s still got lots of money!

Germany’s power-transmission companies have tabled plans to build four electricity Autobahns to link wind turbines off the north coast with manufacturing centres in the south – a boost for Angela Merkel after criticism from industry that Berlin has done little since announcing an accelerated nuclear phase-out a year ago.

Tennet, Amprion, 50 Hertz and Transnet BW said that building 3,800km high-voltage electricity lines – at a cost of around €20-billion – over the next decade was possible if politicians and public rallied behind the so-called energy transformation.

German two-year notes yield zero:

German two-year government notes advanced, sending the yield to zero for the first time.

The rate was at 0.002 percent at 4:36 p.m. London time.

Other countries yield a little more:

Signs of stress multiplied in financial markets today. Italy missed its target in a bond auction, driving its 10-year yields up to 6.01 percent at one point, the highest since Jan. 31. The yield was at 5.93 percent at 5:26 p.m. in Brussels. Doubts over the health of Spain’s banks pushed up Spanish 10- year yields to 6.70 percent, the highest since Nov. 28. That yield was last at 6.63 percent.

But … there’s never an ill wind …:

U.S. 5-year government bonds have also reached a new low of 0.6967 per cent, lower than the 0.7045 per cent they hit in early February, and 30-year Treasuries have also dropped to 2.72 per cent – though the low for these bonds was around 2.5 per cent in December 2008.

It was a sharply negative day for the Canadian preferred share market, with PerpetualPremiums down 15bp, FixedResets losing 31bp (about one-third of this was due to the evaporation of the bid in RY.PR.Y and may be regarded as ficticious and transient) and DeemedRetractibles off 11bp. The Performance Highlights table is longer than usual and dominated by losers. Volume was on the light side.

PerpetualDiscounts now yield 5.15%, equivalent to 6.70% interest at the standard equivalency factor of 1.3x. Long Corporates now yield about 4.4%, so the pre-tax interest-equivalent spread is now about 230bp, unchanged from the figure reported May 23.

Too soon to call it a trend … but there are interesting goings-on in the credit rating agency world:

The response to the Moody’s Investors Service downgrade of the biggest Nordic banks was rising bond and share prices.

The reaction is the latest sign that investors are paying less attention to the views of rating companies and relying more on their own analysis to determine whether to buy or sell.
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Denmark, which is bringing its proposals to the European Parliament, says ratings often don’t reflect credit risks. Measures to improve the industry include a plan to cut reliance on ratings for both investors and within financial regulation, the Business Ministry in Copenhagen said May 21. The intention is also to make it easier for investors and issuers to demand compensation from ratings companies that fail to do their job properly, the ministry said.

In Denmark, banks have started firing Moody’s after winning assurances from some of the country’s biggest investors that the opinions of ratings companies hold limited value. Nykredit A/S, Denmark’s biggest mortgage lender and Europe’s largest issuer of covered bonds backed by home loans, terminated its contract with Moody’s in April, citing its “volatile” views.

There’s nothing in the article about the potential for investors and issuers to demand compensation from investment managers that fail to do their job properly – what a surprise! Assurances from large investors that opinions of ratings companies hold limited value hold limited value – what else are they going to say?

In Greek news:

The New Democracy party in Greece, which supports the austerity measures imposed by the European Union, came first in all six opinion polls published on May 26 as campaigning continued for the country’s general election on June 17.

Party leader Antonis Samaras sought to illustrate the consequences of a euro exit, saying Greek incomes, bank deposits and property values would lose at least half their value within days, while food prices would rise by a quarter.

Hmmm … maybe it will help him win. Maybe. And maybe it will also accellerate the bank run. Maybe.

It was a mixed day for the Canadian preferred share market, with PerpetualPremiums gaining 4bp, FixedResets off 2bp and DeemedRetractibles down 6bp. Volatility was average. Volume remained light.