{"id":1779,"date":"2008-02-05T22:43:09","date_gmt":"2008-02-06T02:43:09","guid":{"rendered":"http:\/\/www.prefblog.com\/?p=1779"},"modified":"2008-02-05T22:43:09","modified_gmt":"2008-02-06T02:43:09","slug":"february-5-2008","status":"publish","type":"post","link":"https:\/\/prefblog.com\/?p=1779","title":{"rendered":"February 5, 2008"},"content":{"rendered":"

The roar erupts from the angry crowds: when is PrefBlog going to get any work done? Again today, general commentary will be greatly foreshortened. In my defence, I can only say that I was able to post about Seniority of BAs<\/a>, ruin Kaspu<\/em>‘s day with a comment on CCS.PR.C<\/a>, report on performance of Malachite Aggressive Preferred Fund<\/a> (my little fund did well! So why is it a little<\/em> fund?), Best & Worst January Performers<\/a> and finally January Index Performance<\/a>.<\/p>\n

So, apart from time constraints, my fingers are tired.<\/p>\n

Econbrowser<\/em>‘s Menzie Chinn commented on the Bush Budget<\/a> and highlights the Reuters report<\/a> by David Lawder :<\/p>\n

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“I think the main deceptions in the budget are the same ones we’ve seen for five years. The costs for Iraq and Afghanistan has consistently been $200 billion a year, but they’ve only put aside $70 billion,” said Chris Edwards, economist at the libertarian Cato Institute. “The war will cost $100 (billion) to $150 billion a year until 2012 or so.”<\/p>\n

Coupled with unrealistic growth forecasts, the additional war costs mean the fiscal 2008 deficit will likely top $500 billion, he said.<\/p>\n<\/blockquote>\n

Even Captain’s Quarters, a political blog which can usually be counted on to toe the Republican party line, has thrown in the towel<\/a> on any hopes for fiscal conservatism. I continue to think that American fiscal profligacy will continue until conditions are in a lot worse shape than they are now – and, as in Canada, it will be the non-(so-called)-conservative party that does it, because they’re the ones who can’t be attacked for preaching hard times and shooting the hippo.<\/p>\n

Fun and frolic for CDOs continued, with Fitch revamping its model<\/a> and taking a gloomier view on the underlying securities chance of default. But nobody trades those things anymore<\/a>, do they?:<\/p>\n

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Buying and selling of collateralized debt obligations based on mortgage bonds, high-yield loans or preferred shares has ground to a near-halt, traders said at the securitization industry’s largest conference.<\/p>\n

“We’re definitely in a period of very low liquidity at the moment, which has actually been dropping precipitously in the last few weeks,” Ross Heller, an executive director at JPMorgan Securities Inc., said yesterday during a panel discussion at the American Securitization Forum’s annual conference in Las Vegas. “It’s a challenging time.”<\/p>\n<\/blockquote>\n

I should note that the story is referring to American preferred shares, not Canadian ones. While some American issues are eligible for preferential tax treatment, this is a major bone of political contention, as I noted on January 10<\/a> (and continued after the charts, in the “Update” section). Without tax advantages, prefs are simply deeply subordinated debt.<\/p>\n

This model revision is also having knock-on effects on … wait for it … the monolines<\/a>:<\/p>\n

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MBIA Inc.’s AAA bond insurance ranking was placed back under review for a downgrade by Fitch Ratings less than a month after being affirmed with a stable outlook.<\/p>\n

Fitch, which also put CIFG Financial Guaranty back under review, is updating its assumptions for higher losses on U.S. subprime-mortgage securities, the New York-based ratings company said today in a statement. If loss projections rise materially, the AAA ratings on bond insurers may no longer be appropriate regardless of how much capital they hold, the company said.<\/p>\n<\/blockquote>\n

And it’s not as if the monolines don’t\u00a0recognize their problems<\/a>:<\/p>\n

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XL Capital Ltd., the Bermuda-based business insurer, said it lost $1.06 billion in the fourth quarter as it wrote down the value of investments including a stake in bond insurer Security Capital Assurance Ltd.<\/p>\n

XL lost $6.01 a share, compared with a net profit of $481.1 million, or $2.62 a year earlier, the company said today in a statement. Excluding investment losses, XL earned 66 cents a share, lagging the $1.45 average estimate of 14 analysts surveyed by Bloomberg.<\/p>\n<\/blockquote>\n

It seems, however, that business conditions aside, some portion of the monoline damage is self-inflicted … hedges aren’t perfect<\/a> (hat tip: MarketRant<\/a>).<\/p>\n

Speaking of hedges … there is much concern and consternation about the BCE deal and the seemingly different probabilities<\/a> assigned by the stock and bond markets (hat tip: Financial Webring Forum<\/a>):<\/p>\n

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When it comes to the chances of the $35-billion BCE Inc. buyout falling through, the bond market isn’t buying what the equity market is selling.<\/p>\n

Many stock market investors clearly believe the deal is likely to fail. The stock finished Friday at $36 on the Toronto Stock Exchange, well below the $42.75 that Ontario Teachers’ Pension Plan and its partners agreed to pay last June before global markets went haywire.
\n…<\/strong>
\nThose in the bond market, on the other hand, are much more convinced the transaction will close later this year.<\/p>\n

According to the credit-default swaps (CDS) market, an influential backroom of the financial system where big bond investors place bets, there’s at least a 70-per-cent chance that the deal succeeds.<\/p>\n<\/blockquote>\n

To me, this sounds normal. Each market is taking a gloomy view. Didn’t the lawsuit over Hemlo<\/a> take a billion dollars off the combined market cap of the adversaries, when logically it should have been a wash? Seems to me that if I were a hedge fund, I’d be devoting enormous resources to calculating what proportion of equity and bonds I should have in a basket that … maybe, possibly, subject to fearsome market punishment … would have an expected positive return irrespective of the outcome.<\/p>\n

A relatively quiet day in the preferred market. I’ll admit, I view the precipituous decline in the number of issues on the “Price Mover” list with mixed feelings … on the one hand, it means I have a whole lot less typing to do (I still haven’t caught up with HIMIPref\u2122 Preferred Indices, so I still have to do it all manually); on the other hand, huge price movements are often a source of wonderful trades. Oh well, we’ll just see how it goes.<\/p>\n

WFS.PR.A is behaving strangely … the huge volume today is unusual, but not strange; what’s strange is the day’s high price: $10.75. Holy smokes, at that level you’re amortizing the premium by over $0.20 annually\u00a0against dividends of $0.525 to wind up with a Yield-to-Maturity<\/strong> of about 3.1%, according to Mr. Calculator<\/a>. Geez, and there I am, thinking it’s overpriced at\u00a0$10.37, yielding 4.26%!\u00a0<\/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>\n5.55%<\/td>\n5.58%<\/td>\n51,398<\/td>\n14.50<\/td>\n2<\/td>\n-0.2658%<\/td>\n1,070.4<\/td>\n<\/tr>\n
Fixed-Floater<\/td>\n5.18%<\/td>\n5.68%<\/td>\n86,336<\/td>\n14.67<\/td>\n7<\/td>\n-0.3814%<\/td>\n1,016.4<\/td>\n<\/tr>\n
Floater<\/td>\n4.93%<\/td>\n4.98%<\/td>\n77,696<\/td>\n15.52<\/td>\n3<\/td>\n+0.3947%<\/td>\n856.6<\/td>\n<\/tr>\n
Op. Retract<\/td>\n4.83%<\/td>\n1.76%<\/td>\n81,067<\/td>\n2.71<\/td>\n15<\/td>\n-0.2348%<\/td>\n1,042.7<\/td>\n<\/tr>\n
Split-Share<\/td>\n5.31%<\/td>\n5.52%<\/td>\n100,092<\/td>\n4.11<\/td>\n15<\/td>\n-0.0522%<\/td>\n1,036.3<\/td>\n<\/tr>\n
Interest Bearing<\/td>\n6.28%<\/td>\n6.42%<\/td>\n62,105<\/td>\n3.36<\/td>\n4<\/td>\n-0.5243%<\/td>\n1,074.6<\/td>\n<\/tr>\n
Perpetual-Premium<\/td>\n5.75%<\/td>\n5.49%<\/td>\n404,764<\/td>\n6.06<\/td>\n16<\/td>\n+0.1252%<\/td>\n1,025.0<\/td>\n<\/tr>\n
Perpetual-Discount<\/td>\n5.44%<\/td>\n5.47%<\/td>\n302,020<\/td>\n14.71<\/td>\n52<\/td>\n+0.0718%<\/td>\n944.4<\/td>\n<\/tr>\n<\/table>\n<\/div>\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
BCE.PR.G<\/td>\nFixFloat<\/td>\n-2.1142%<\/td>\n\u00a0<\/td>\n<\/tr>\n
BSD.PR.A<\/td>\nInterestBearing<\/td>\n-1.7690%<\/td>\nAsset coverage of just under 1.6:1 as of February 1, according to Brookfield Funds<\/a>. Now with a pre-tax bid-YTW of 7.23% (mostly as interest) based on a bid of 9.44 and a hardMaturity<\/a> 2015-3-31 at 10.00.<\/td>\n<\/tr>\n
IAG.PR.A<\/td>\nPerpetualDiscount<\/td>\n-1.6841%<\/td>\nNow with a pre-tax bid-YTW of 5.38% based on a bid of 21.60 and a limitMaturity<\/a>.<\/td>\n<\/tr>\n
CM.PR.G<\/td>\nPerpetualDiscount<\/td>\n+1.0549%<\/td>\nNow with a pre-tax bid-YTW of 5.67% based on a bid of 23.95 and a limitMaturity.<\/td>\n<\/tr>\n
RY.PR.E<\/td>\nPerpetualDiscount<\/td>\n+1.4554%<\/td>\nNow with a pre-tax bid-YTW of 5.21% based on a bid of 21.61 and a limitMaturity.<\/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
BNS.PR.O<\/td>\nPerpetualPremium<\/td>\n345,600<\/td>\nScotia crossed 15,000 at 25.25. New issue settled 1\/31. Now with a pre-tax bid-YTW of 5.51% based on a bid of 25.24 and a call 2017-5-26 at 25.00.<\/td>\n<\/tr>\n
WFS.PR.A<\/td>\nSplitShare<\/td>\n369,127<\/td>\nAsset coverage of just under 1.9:1 as of January 31, according to Mulvihill<\/a>. Now with a pre-tax bid-YTW of 4.26% based on a bid of 10.37 and a hardMaturity<\/a> 2011-6-30 at 10.00.<\/td>\n<\/tr>\n
PWF.PR.K<\/td>\nPerpetualDiscount<\/td>\n128,000<\/td>\nScotia crossed 75,000 at 23.01; Nesbitt crossed 50,000 at the same price. Now with a pre-tax bid-YTW of 5.43% based on a bid of 22.91 and a limitMaturity.<\/td>\n<\/tr>\n
RY.PR.A<\/td>\nPerpetualDiscount<\/td>\n56,205<\/td>\nNesbitt crossed 47,100 at 21.20. Now with a pre-tax bid-YTW of 5.26% based on a bid of 21.21 and a limitMaturity.<\/td>\n<\/tr>\n
PWF.PR.H<\/td>\nPerpetualPremium<\/td>\n52,700<\/td>\nNesbitt crossed 50,000 at 25.43. Now with a pre-tax bid-YTW of 5.43% based on a bid of 25.33 and a call 2012-1-9 at 25.00.<\/td>\n<\/tr>\n<\/table>\n<\/div>\n

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

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\n<\/p>\n

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

The roar erupts from the angry crowds: when is PrefBlog going to get any work done? Again today, general commentary will be greatly foreshortened. In my defence, I can only say that I was able …<\/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-1779","post","type-post","status-publish","format-standard","hentry","category-market-action"],"_links":{"self":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts\/1779","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=1779"}],"version-history":[{"count":0,"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts\/1779\/revisions"}],"wp:attachment":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=1779"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=1779"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=1779"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}