Not quite so many links as has been the case lately, thank heavens, but those that I am going to put up are of exceptional interest … so read carefully!<\/p>\n
Coventree was able to roll $600-million worth of paper<\/a> today, which is good news, but noted:<\/p>\n “This ABCP was purchased primarily by investors who elected to renew or roll over their ABCP that matured (Tuesday),” Coventree stated.<\/p><\/blockquote>\n I suspect there’s something of Mexican standoff implicit in the above remarks … if Coventree had to enter CCAA Protection<\/a> it would be worse for both the company and the creditors.<\/p>\n There was a hint that much the same thing might be happening in the States, with Countrywide Financial stock plunging<\/a> when Merrill Lynch changed its recommendation from “Buy” to “Sell” based on liquidity concerns. The analyst’s track-record was not disclosed. As in many such cases, this accellerated concerns<\/a> to the point of becoming a self-fulfilling prophecy:<\/p>\n Countrywide credit-default swaps soared 225 basis points to 600 basis points, according to broker Phoenix Partners Group. That means it costs $600,000 a year to protect $10 million of Countrywide bonds from default for five years. The contracts have risen more than sixfold in the past month.\u00a0\u00a0<\/p>\n The rout intensified after CNBC reported that Countrywide’s 30-day asset-backed commercial paper was being quoted by dealers at a 12.54 percent yield. The company previously borrowed at 15 basis points, or 0.15 percentage point, over the London interbank offered rate, which currently is about 5.57 percent for 30-day borrowings, the cable-television network reported<\/p><\/blockquote>\n Even one of the bond market’s golden boys\u00a0is affected, though admittedly the\u00a0damage is largely self-inflicted: Nestle lost its triple-A status<\/a>:<\/p>\n Nestle’s was cut one level to AA+ by Fitch and to Aa1 by Moody’s after the Vevey, Switzerland-based company said it plans to repurchase 25 billion Swiss francs ($21 billion) of stock, its biggest-ever share buyback. The downgrade leaves only Johnson & Johnson, Toyota Motor Corp. and Exxon Mobil Corp. holding AAA ratings from both Moody’s and Standard & Poor’s as well as Fitch.<\/p><\/blockquote>\n In late news<\/a> that might broil the markets tomorrow:<\/p>\n Australia’s Rams Home Loans Group Ltd. has been unable to refinance A$6.17 billion ($5 billion) of short-term U.S. loans because of a “lack of market liquidity” caused by the global credit rout.<\/p>\n Rams cited the “tightening of the global credit markets” for failing to sell the so-called extendable commercial paper, the company’s largest source of funding for its loans, it said in a statement today.<\/p>\n The lender has been given temporary funding of A$1 billion by two of its providers, Rams said.<\/p><\/blockquote>\n In turn, both American<\/a> and Canadian<\/a> equities tanked. Today’s fearless prediction: pundits in tomorrow’s paper will note that the Canadian index is now more than 10% off its peak, meeting the generally accepted definition of a “correction”.<\/p>\n Reminds me of my back-office days back in 1987.\u00a0I was asked\u00a0quite seriously if I thought the 502-point drop in the Dow was a “crash” or a “correction”. I said I thought it meant the Dow was down 502 points, which wasn’t considered a particularly penetrating answer.<\/p>\n All the angst got the central banks moving. The Bank of Canada lowered its standards for repurchase agreements<\/a> and the current month Fed Futures<\/a> are now showing an expectation of an average Fed Funds rate for August (this month! August!) of 4.99%, twenty-six bps below target. This follows disclosure that the dollar-weighted average of actual Fed Funds transactions yesterday was 4.54%<\/a>, with a low of half a point. We can\u00a0be thankful that inflation numbers were benign<\/a> and were met with cheers<\/a>. A Fed governor, Poole, reminded the markets<\/a> not to take anything for granted – the Fed cares about the real economy, not bit of Wall Street paper.<\/p>\n Given the de facto<\/em> easing, it is not surpising that Treasuries<\/a> had a really good day, with the two-year yield declining six basis points, although the spoil-sports trading ten-years took yield up 1bp, for a marked steeping. Canadas<\/a> did not behave in anywhere near so dramatic a fashion, but 2-10 still steepened 2.3bp.<\/p>\n Rotten\u00a0day in the preferred market,\u00a0with all but one of the indices down on the day\u00a0– and that one (FixFloat)\u00a0was due to exceptional performance by BCE.PR.T, which accomplished this feat on zero volume. It’s very tempting to try to read something into this performance; but then again, in such a retail dominated market, strange things can happen<\/a>.<\/p>\n Again, lack of interest in the lower rated credits was noticable, with the following performance stand-outs: YLD.PR.B, -4.55%; IQW.PR.D, -4.43%; HPF.PR.B, -4.26%; STQ.E, -3.01%; IQW.PR.C, -2.83%; DC.PR.A, -2.29%; GT.PR.A, -2.15%; NTL.PR.F, -2.07%; BBD.PR.C, -1.40%; BBD.PR.B, -1.32%; BPO.PR.J, -1.22%;\u00a0and\u00a0YPG.PR.A, -1.09%. Some of the lower rated credits bounced, but not many: WN.PR.C, +1.06%; WN.PR.D, +1.41%.<\/p>\n Just for fun, I’ll update the ‘Junky but not quite junk’ list<\/a> (and remember, this is not representative! While the selections were not entirely random, they’re not entirely representative, either!).<\/p>\n