{"id":1715,"date":"2008-01-21T22:55:10","date_gmt":"2008-01-22T02:55:10","guid":{"rendered":"http:\/\/www.prefblog.com\/?p=1715"},"modified":"2008-01-21T22:55:10","modified_gmt":"2008-01-22T02:55:10","slug":"january-21-2008","status":"publish","type":"post","link":"https:\/\/prefblog.com\/?p=1715","title":{"rendered":"January 21, 2008"},"content":{"rendered":"

Unlike Quebecor<\/a>, the monoline ACA Capital Holdings (of CIBC and Merrill Lynch fame<\/a>) was given a little breathing room\u00a0by its creditors, presumably on the\u00a0grounds that it doesn’t make much\u00a0difference.\u00a0Three comments from the story are of interest:<\/p>\n

\n

Most of those guarantees are in the form of derivatives. Unlike insurance, these contracts are required to be valued at market rates.
\n…<\/strong>
\n“The monolines are dead, their business model is dead,” said David Roche, head of investment consultancy Independent Strategy in London. “The government is going to have to recapitalize this industry or there will be communities in the U.S. where they can’t even flush their toilets” because they can’t afford the services.
\n…<\/strong>
\nNew York State Insurance Superintendent Eric Dinallo is examining whether to limit the types of debt that can be guaranteed by bond insurers, department spokesman David Neustadt said last week.<\/p>\n<\/blockquote>\n

The first item of interest is the explicit recognition of the problem inherent in the originate-and-distribute model … or perhaps we should refer to it as a problem in the originate-and-hold model! When a bank grants a mortgage, funds it with, say, a GIC and keeps everything on their books, mark-to-market problems are minimized. But if it buys that same mortgage as a security, it is exposed to market fluctuations in the value of that mortgage. I’m sure I’ve mentioned this issue before, but can’t find my reference! Perhaps this exposure to price volatility should have been mentioned as\u00a0a “friction” in the Fed research paper by Ashcraft & Schuermann<\/a>.<\/p>\n

The second note … well, I’m certainly not an expert on the US Municipal market! Sounds to me a little bit like hysteria, though!<\/p>\n

And the third not shows what we can expect over the next few years – the dead hand of regulation stifling the securities business, or at least threatening to do so.<\/p>\n

Naked Capitalism<\/em> reprinted an interesting piece<\/a> by Wolfgang Munchau regarding the nature of the … projected? imminent? current? …US recession, arguing that it will be extended due its nature:<\/p>\n

\n

Interest rate cuts work their way through to the real economy by a number of transmission channels. During the 2001 recession in the US, the most important was housing credit. The rate cuts came at a time when the housing market was already booming. They turned the boom into a super-boom. Inflationary expectations were low. People expected interest rates to remain low. It was a great moment to take on extra debt, and this was precisely what Americans did.<\/p>\n

The current US downturn could not be more different. House prices are falling, and have further to fall before reaching a more sustainable level (in terms of the price-to-rent ratios as well as several other measures).
\n…<\/strong>
\nThe corporate credit channel works more slowly. A company faced with an acute downturn in demand for its products is not going to start investing immediately when interest rates fall.
\n…<\/strong>
\nWith core inflation stubbornly over 2 per cent, the current 10-year yield of 3.8 per cent seems a touch optimistic. So we might be seeing a simultaneous fall in short-term rates and a rise in long-term rates.
\n…<\/b>
\nCui bono? The banks, of course. The bank-bailout channel will be the only monetary transmission mechanism to function like clockwork. The steeper the yield curve, the greater the profits for banks, which make a living by borrowing at short interest rates and lending at long rates.
\n…<\/b>
\nAs time goes on, the financial sector\u2019s health will gradually improve. Eventually, the credit squeeze will be over \u2013 and the next irresponsible lending boom can begin.<\/p>\n<\/blockquote>\n

These are important concepts … particularly for those who are outraged by the banks’ so-called defiance of the Bank of Canada, reported here January 16<\/a>.<\/p>\n

Great excitement in Canadian equities<\/a> today:<\/p>\n

\n

The Standard & Poor’s\/TSX Composite Index fell 604.98, or 4.8 percent, to 12,132.14 in Toronto for its worst drop since Feb. 16, 2001. The benchmark has retreated 17 percent from near a record on Oct. 31 to the lowest in 15 months, approaching a “bear market” drop of 20 percent.<\/p>\n<\/blockquote>\n

Given that Tokyo is now getting hammered<\/a>, it should be an official bear market at the opening tomorrow.<\/p>\n

Oddly enough, the carnage spilled over into preferred shares, with the S&P\/TSX\u00a0 Preferred Share Index<\/a> down 0.87%. Panic? Confusion? Cool-headed efficiency? You tell me. Volume was on the light side of normal.<\/p>\n

\n\n\n\n\n\n\n\n\n\n\n\n
Note that these indices are experimental; the absolute and relative daily values are expected to change in the final version. In this version, index values are based at 1,000.0 on 2006-6-30<\/strong><\/td>\n<\/tr>\n
Index<\/td>\nMean Current Yield (at bid)<\/td>\nMean YTW<\/td>\nMean Average Trading Value<\/td>\nMean Mod Dur (YTW)<\/td>\nIssues<\/td>\nDay’s Perf.<\/td>\nIndex Value<\/td>\n<\/tr>\n
Ratchet<\/td>\n5.43%<\/td>\n5.44%<\/td>\n56,641<\/td>\n14.72<\/td>\n2<\/td>\n+0.8602%<\/td>\n1,077.1<\/td>\n<\/tr>\n
Fixed-Floater<\/td>\n5.06%<\/td>\n5.60%<\/td>\n77,519<\/td>\n14.73<\/td>\n9<\/td>\n-1.1361%<\/td>\n1,012.0<\/td>\n<\/tr>\n
Floater<\/td>\n5.28%<\/td>\n5.32%<\/td>\n90,099<\/td>\n14.97<\/td>\n3<\/td>\n-0.1170%<\/td>\n835.2<\/td>\n<\/tr>\n
Op. Retract<\/td>\n4.84%<\/td>\n3.73%<\/td>\n83,983<\/td>\n3.02<\/td>\n15<\/td>\n+0.0527%<\/td>\n1,039.5<\/td>\n<\/tr>\n
Split-Share<\/td>\n5.38%<\/td>\n5.95%<\/td>\n100,837<\/td>\n4.26<\/td>\n15<\/td>\n-1.0938%<\/td>\n1,019.5<\/td>\n<\/tr>\n
Interest Bearing<\/td>\n6.31%<\/td>\n6.49%<\/td>\n61,551<\/td>\n3.61<\/td>\n4<\/td>\n-0.3791%<\/td>\n1,067.9<\/td>\n<\/tr>\n
Perpetual-Premium<\/td>\n5.82%<\/td>\n5.62%<\/td>\n64,923<\/td>\n8.10<\/td>\n12<\/td>\n-0.3536%<\/td>\n1,015.3<\/td>\n<\/tr>\n
Perpetual-Discount<\/td>\n5.59%<\/td>\n5.64%<\/td>\n325,722<\/td>\n14.44<\/td>\n54<\/td>\n-0.7717%<\/td>\n916.7<\/td>\n<\/tr>\n<\/table>\n<\/div>\n
\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n
Major Price Changes<\/strong><\/td>\n<\/tr>\n
Issue<\/td>\nIndex<\/td>\nChange<\/td>\nNotes<\/td>\n<\/tr>\n
BNA.PR.C<\/td>\nSplitShare<\/td>\n-4.8223%<\/td>\nAsset coverage of 3.6+:1 according to the company<\/a>. Now with a pre-tax bid-YTW of 7.92% (over 11% interest equivalent!) based on a bid of 18.75 and a hardMaturity<\/a> 2019-1-10 at 25.00. Compare with BNA.PR.A (6.10% to 2010-9-30) and BNA.PR.B (7.34% to 2016-3-25).<\/td>\n<\/tr>\n
BAM.PR.G<\/td>\nFixFloat<\/td>\n-3.8246%<\/td>\n\u00a0<\/td>\n<\/tr>\n
FTU.PR.A<\/td>\nSplitShare<\/td>\n-3.6458%<\/td>\nAsset coverage of just under 1.6:1 as of January 15, according to the company<\/a>. Now with a pre-tax bid-YTW of 7.22% based on a bid of 9.25 and a hardMaturity<\/a> 2012-12-1 at 10.00.<\/td>\n<\/tr>\n
ELF.PR.F<\/td>\nPerpetualDiscount<\/td>\n-3.5294%<\/td>\nNow with a pre-tax bid-YTW of 6.52% based on a bid of 20.50 and a limitMaturity.<\/td>\n<\/tr>\n
BCE.PR.G<\/td>\nFixFloat<\/td>\n-3.4307%<\/td>\n\u00a0<\/td>\n<\/tr>\n
BCE.PR.T<\/td>\nFixFloat<\/td>\n-3.3613%<\/td>\n\u00a0<\/td>\n<\/tr>\n
BAM.PR.M<\/td>\nPerpetualDiscount<\/td>\n-2.8418%<\/td>\nNow with a pre-tax bid-YTW of 6.64% based on a bid of 18.12 and a limitMaturity.<\/td>\n<\/tr>\n
CM.PR.J<\/td>\nPerpetualDiscount<\/td>\n-2.7204%<\/td>\nNow with a pre-tax bid-YTW of 5.86% based on a bid of 19.31 and a limitMaturity.<\/td>\n<\/tr>\n
HSB.PR.C<\/td>\nPerpetualDiscount<\/td>\n-2.6587%<\/td>\nNow with a pre-tax bid-YTW of 5.67% based on a bid of 22.70 and a limitMaturity.<\/td>\n<\/tr>\n
BMO.PR.K<\/td>\nPerpetualDiscount<\/td>\n-2.4641%<\/td>\nNow with a pre-tax bid-YTW of 5.67% based on a bid of 23.75 and a limitMaturity.<\/td>\n<\/tr>\n
CIU.PR.A<\/td>\nPerpetualDiscount<\/td>\n-2.2868%<\/td>\nNow with a pre-tax bid-YTW of 5.70% based on a bid of 20.51 and a limitMaturity.<\/td>\n<\/tr>\n
GWO.PR.I<\/td>\nPerpetualDiscount<\/td>\n-2.2052%<\/td>\nNow with a pre-tax bid-YTW of 5.57% based on a bid of 20.40 and a limitMaturity.<\/td>\n<\/tr>\n
LFE.PR.E<\/td>\nSplitShare<\/td>\n-2.0038%<\/td>\nAsset coverage of 2.5+:1 as of January 15, according to the company<\/a>. Now with a pre-tax bid-YTW of 4.71% based on a bid of 10.27 and a hardMaturity 2012-12-1 at 10.00.<\/td>\n<\/tr>\n
BAM.PR.N<\/td>\nPerpetualDiscount<\/td>\n-1.8620%<\/td>\nNow with a pre-tax bid-YTW of 6.71% based on a bid of 17.92 and a limitMaturity.<\/td>\n<\/tr>\n
TD.PR.P<\/td>\nPerpetualDiscount<\/td>\n-1.7959%<\/td>\nNow with a pre-tax bid-YTW of 5.47% based on a bid of 24.06 and a limitMaturity.<\/td>\n<\/tr>\n
RY.PR.W<\/td>\nPerpetualDiscount<\/td>\n-1.5345%<\/td>\nNow with a pre-tax bid-YTW of 5.39% based on a bid of 23.10 and a limitMaturity.<\/td>\n<\/tr>\n
RY.PR.G<\/td>\nPerpetualDiscount<\/td>\n-1.4720%<\/td>\nNow with a pre-tax bid-YTW of 5.52% based on a bid of 20.75 and a limitMaturity.<\/td>\n<\/tr>\n
CM.PR.P<\/td>\nPerpetualDiscount<\/td>\n-1.4505%<\/td>\nNow with a pre-tax bid-YTW of 5.76% based on a bid of 23.78 and a limitMaturity.<\/td>\n<\/tr>\n
RY.PR.D<\/td>\nPerpetualDiscount<\/td>\n-1.4211%<\/td>\nNow with a pre-tax bid-YTW of 5.50% based on a bid of 20.81 and a limitMaturity.<\/td>\n<\/tr>\n
FBS.PR.B<\/td>\nSplitShare<\/td>\n-1.4141%<\/td>\nAsset coverage of 1.6+:1 as of January 17, according to TD Securities<\/a>. Now with a pre-tax bid-YTW of 5.62% based on a bid of 9.76 and a hardMaturity 2011-12-15 at 10.00.<\/td>\n<\/tr>\n
RY.PR.A<\/td>\nPerpetualDiscount<\/td>\n-1.3718%<\/td>\nNow with a pre-tax bid-YTW of 5.43% based on a bid of 20.85 and a limitMaturity.<\/td>\n<\/tr>\n
BNA.PR.B<\/td>\nSplitShare<\/td>\n-1.3699%<\/td>\nNow with a pre-tax bid-YTW of 7.34% based on a bid of 21.60 and a hardMaturity 2016-3-25 at 25.00. See BNA.PR.C, above, for asset coverage & comparisons.<\/td>\n<\/tr>\n
GWO.PR.G<\/td>\nPerpetualDiscount<\/td>\n-1.2605%<\/td>\nNow with a pre-tax bid-YTW of 5.58% based on a bid of 23.50 and a limitMaturity.<\/td>\n<\/tr>\n
SLF.PR.E<\/td>\nPerpetualDiscount<\/td>\n-1.2494%<\/td>\nNow with a pre-tax bid-YTW of 5.53% based on a bid of 20.55 and a limitMaturity.<\/td>\n<\/tr>\n
SLF.PR.D<\/td>\nPerpetualDiscount<\/td>\n-1.2494%<\/td>\nNow with a pre-tax bid-YTW of 5.47% based on a bid of 20.55 and a limitMaturity.<\/td>\n<\/tr>\n
PWF.PR.K<\/td>\nPerpetualDiscount<\/td>\n-1.1743%<\/td>\nNow with a pre-tax bid-YTW of 5.68% based on a bid of 21.88 and a limitMaturity.<\/td>\n<\/tr>\n
BMO.PR.H<\/td>\nPerpetualDiscount<\/td>\n-1.0475%<\/td>\nNow with a pre-tax bid-YTW of 5.40% based on a bid of 24.56 and a limitMaturity.<\/td>\n<\/tr>\n
BNS.PR.N<\/td>\nPerpetualDiscount<\/td>\n-1.0417%<\/td>\nNow with a pre-tax bid-YTW of 5.55% based on a bid of 23.75 and a limitMaturity.<\/td>\n<\/tr>\n
POW.PR.A<\/td>\nPerpetualDiscount<\/td>\n-1.0200%<\/td>\nNow with a pre-tax bid-YTW of 5.81% based on a bid of 24.26 and a limitMaturity.<\/td>\n<\/tr>\n
W.PR.H<\/td>\nPerpetualDiscount<\/td>\n+1.0101%<\/td>\nNow with a pre-tax bid-YTW of 5.71% based on a bid of 24.00 and a limitMaturity.<\/td>\n<\/tr>\n
BCE.PR.B<\/td>\nRatchet<\/td>\n+2.0833%<\/td>\n\u00a0<\/td>\n<\/tr>\n<\/table>\n<\/div>\n
\n\n\n\n\n\n\n\n\n
Volume Highlights<\/strong><\/td>\n<\/tr>\n
Issue<\/td>\nIndex<\/td>\nVolume<\/td>\nNotes<\/td>\n<\/tr>\n
IQW.PR.D<\/td>\nPerpetualDiscount<\/td>\n339,140<\/td>\nApplied for creditor protection today<\/a>.<\/td>\n<\/tr>\n
TD.PR.P<\/td>\nPerpetualDiscount<\/td>\n25,582<\/td>\nNow with a pre-tax bid-YTW of 5.47% based on a bid of 24.06 and a limitMaturity.<\/td>\n<\/tr>\n
FTN.PR.A<\/td>\nSplitShare<\/td>\n54,829<\/td>\nAsset coverage of just under 2.3:1 as of January 15, according to the company<\/a>. Now with a pre-tax bid-YTW of 5.73% based on a bid of 9.98 and a hardMaturity 2008-12-1 at 10.00.<\/td>\n<\/tr>\n
CM.PR.I<\/td>\nPerpetualDiscount<\/td>\n21,905<\/td>\nNow with a pre-tax bid-YTW of 5.77% based on a bid of 20.50 and a limitMaturity.<\/td>\n<\/tr>\n
FIG.PR.A<\/td>\nInterestBearing<\/td>\n25,051<\/td>\nAsset coverage of 2.0+:1 as of January 18, according to Faircourt<\/a>. Now with a pre-tax bid-YTW of 6.64% (mostly as interest) based on a bid of 9.85 and a hardMaturity 2014-12-31 at 10.00.<\/td>\n<\/tr>\n<\/table>\n<\/div>\n

There were fifteen other index-included $25.00-equivalent issues trading over 10,000 shares today.\n<\/p>\n

<\/p>\n","protected":false},"excerpt":{"rendered":"

Unlike Quebecor, the monoline ACA Capital Holdings (of CIBC and Merrill Lynch fame) was given a little breathing room\u00a0by its creditors, presumably on the\u00a0grounds that it doesn’t make much\u00a0difference.\u00a0Three comments from the story are of …<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[15],"tags":[],"class_list":["post-1715","post","type-post","status-publish","format-standard","hentry","category-market-action"],"_links":{"self":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts\/1715","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=1715"}],"version-history":[{"count":0,"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts\/1715\/revisions"}],"wp:attachment":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=1715"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=1715"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=1715"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}