{"id":19706,"date":"2012-09-12T01:50:30","date_gmt":"2012-09-12T05:50:30","guid":{"rendered":"http:\/\/www.prefblog.com\/?p=19706"},"modified":"2012-09-12T01:50:30","modified_gmt":"2012-09-12T05:50:30","slug":"september-11-2012","status":"publish","type":"post","link":"https:\/\/prefblog.com\/?p=19706","title":{"rendered":"September 11, 2012"},"content":{"rendered":"

There’s a new wrinkle in the financial repression chronicles<\/a>:<\/p>\n

JPMorgan Chase & Co. (JPM) and Bank of America Corp. are helping clients find an extra $2.6 trillion to back derivatives trades amid signs that a shortage of quality collateral will erode efforts to safeguard the financial system.<\/p>\n

Starting next year, new rules designed to prevent another meltdown will force traders to post U.S. Treasury bonds or other top-rated holdings to guarantee more of their bets. The change takes effect as the $10.8 trillion market for Treasuries is already stretched thin by banks rebuilding balance sheets and investors seeking safety, leaving fewer bonds available to backstop the $648 trillion derivatives market.<\/p>\n

The solution: At least seven banks plan to let customers swap lower-rated securities that don\u2019t meet standards in return for a loan of Treasuries or similar holdings that do qualify, a process dubbed \u201ccollateral transformation.\u201d That\u2019s raising concerns among investors, bank executives and academics that measures intended to avert risk are hiding it instead.<\/p>\n

Adding to the concern is the reaction of central clearinghouses, which collect from losers on derivatives trades and pay off winners. Some have responded to the collateral shortage by lowering standards, with the Chicago Mercantile Exchange accepting bonds rated four levels above junk.<\/p>\n

The potential reward for revenue-starved banks is an expanded securities-lending market that could generate billions of dollars in fees. JPMorgan and Bank of America, which have the biggest derivatives businesses among U.S. bank holding companies with a combined $140 trillion of the instruments, are already marketing their new collateral-transformation desks, people with knowledge of the operations said.<\/p><\/blockquote>\n

As discussed on August 31<\/a>, directed lending to the government is a form of financial repression.<\/p>\n

The US has to force people to buy its bonds! The outlook isn’t getting any better<\/a>:<\/p>\n

Moody\u2019s warned Tuesday it could strip the United States of its coveted triple-A credit rating if Congress fails to produce a budget that will bring down the federal debt burden.<\/p>\n

\u201cBudget negotiations during the 2013 Congressional legislative session will likely determine the direction of the U.S. government\u2019s Aaa rating and negative outlook,\u201d the ratings firm said in a statement.<\/p>\n

If the negotiations lead to specific policies that produce a stabilization and then downward trend in the ratio of federal debt to GDP over the medium term, the rating will likely be affirmed and the outlook returned to stable, it said.<\/p>\n

\u201cIf those negotiations fail to produce such policies, however, Moody\u2019s would expect to lower the rating, probably to Aa1.\u201d<\/p>\n

Moody\u2019s said it was unlikely it would keep the Aaa rating with a negative outlook into 2014.<\/p>\n

\u201cThe only scenario that would likely lead to its temporary maintenance would be if the method adopted to achieve debt stabilization involved a large, immediate fiscal shock \u2013 such as would occur if the so-called \u2018fiscal cliff\u2019 actually materialized \u2013 which could lead to instability,\u201d it said.<\/p><\/blockquote>\n

There was very little movement in the Canadian preferred share market today, with PerpetualPremiums and FixedResets both gaining 3bp; DeemedRetractibles were off 2bp. Volatility was average. Volume improved a little, but was still below what I would call ‘average’ levels; but on a brighter note, RBC owned the board today, with no other dealer mentioned in the Volume Highlights.<\/p>\n\n\n\n\n\n\n\n\n\n\n\n\n\n
HIMIPref™ Preferred Indices
These values reflect the December 2008 revision of the HIMIPref™ Indices<\/strong>
Values are provisional and are finalized monthly<\/td>\n<\/tr>\n
Index<\/td>\nMean
Current
Yield
(at bid)<\/td>\n		Median
YTW<\/td>\n		Median
Average
Trading
Value<\/td>\n		Median
Mod Dur
(YTW)<\/td>\n		Issues<\/td>\nDay’s Perf.<\/td>\nIndex Value<\/td>\n<\/tr>\n
Ratchet<\/td>\n0.00 %<\/td>\n0.00 %<\/td>\n0<\/td>\n0.00<\/td>\n0<\/td>\n-0.5726 %<\/td>\n2,406.6<\/td>\n<\/tr>\n
FixedFloater<\/td>\n4.52 %<\/td>\n3.87 %<\/td>\n35,084<\/td>\n17.53<\/td>\n1<\/td>\n0.0952 %<\/td>\n3,522.5<\/td>\n<\/tr>\n
Floater<\/td>\n3.02 %<\/td>\n3.07 %<\/td>\n55,251<\/td>\n19.46<\/td>\n3<\/td>\n-0.5726 %<\/td>\n2,598.5<\/td>\n<\/tr>\n
OpRet<\/td>\n4.63 %<\/td>\n3.28 %<\/td>\n60,557<\/td>\n1.47<\/td>\n4<\/td>\n0.3644 %<\/td>\n2,548.4<\/td>\n<\/tr>\n
SplitShare<\/td>\n5.48 %<\/td>\n5.07 %<\/td>\n75,233<\/td>\n4.60<\/td>\n3<\/td>\n-0.1065 %<\/td>\n2,799.6<\/td>\n<\/tr>\n
Interest-Bearing<\/td>\n0.00 %<\/td>\n0.00 %<\/td>\n0<\/td>\n0.00<\/td>\n0<\/td>\n0.3644 %<\/td>\n2,330.2<\/td>\n<\/tr>\n
Perpetual-Premium<\/td>\n5.29 %<\/td>\n3.60 %<\/td>\n87,231<\/td>\n0.45<\/td>\n28<\/td>\n0.0271 %<\/td>\n2,279.5<\/td>\n<\/tr>\n
Perpetual-Discount<\/td>\n4.91 %<\/td>\n4.94 %<\/td>\n95,317<\/td>\n15.48<\/td>\n3<\/td>\n0.4430 %<\/td>\n2,546.8<\/td>\n<\/tr>\n
FixedReset<\/td>\n4.99 %<\/td>\n3.07 %<\/td>\n167,093<\/td>\n4.08<\/td>\n70<\/td>\n0.0266 %<\/td>\n2,421.9<\/td>\n<\/tr>\n
Deemed-Retractible<\/td>\n4.95 %<\/td>\n3.68 %<\/td>\n121,414<\/td>\n1.85<\/td>\n46<\/td>\n-0.0187 %<\/td>\n2,365.7<\/td>\n<\/tr>\n<\/table>\n\n\n\n\n\n\n
Performance Highlights<\/strong><\/td>\n<\/tr>\n
Issue<\/td>\nIndex<\/td>\nChange<\/td>\nNotes<\/td>\n<\/tr>\n
BAM.PR.M<\/td>\nPerpetual-Discount<\/td>\n1.04 %<\/td>\nYTW SCENARIO
\nMaturity Type : Limit Maturity
\nMaturity Date\t: 2042-09-11
\nMaturity Price : 24.11
\nEvaluated at bid price : 24.40
\nBid-YTW : 4.94 %<\/td>\n<\/tr>\n
BAM.PR.Z<\/td>\nFixedReset<\/td>\n1.06 %<\/td>\nYTW SCENARIO
\nMaturity Type : Limit Maturity
\nMaturity Date\t: 2042-09-11
\nMaturity Price : 23.35
\nEvaluated at bid price : 25.69
\nBid-YTW : 4.26 %<\/td>\n<\/tr>\n
FTS.PR.E<\/td>\nOpRet<\/td>\n1.45 %<\/td>\nYTW SCENARIO
\nMaturity Type : Call
\nMaturity Date\t: 2013-06-01
\nMaturity Price : 25.75
\nEvaluated at bid price : 26.64
\nBid-YTW : 0.16 %<\/td>\n<\/tr>\n<\/table>\n\n\n\n\n\n\n\n\n\n\n
Volume Highlights<\/strong><\/td>\n<\/tr>\n
Issue<\/td>\nIndex<\/td>\nShares
Traded<\/td>\n		Notes<\/td>\n<\/tr>\n
MFC.PR.D<\/td>\nFixedReset<\/td>\n104,462<\/td>\nRBC crossed two blocks of 50,000 each, both at 26.65.
\nYTW SCENARIO
\nMaturity Type : Call
\nMaturity Date\t: 2014-06-19
\nMaturity Price : 25.00
\nEvaluated at bid price : 26.63
\nBid-YTW : 2.76 %<\/td>\n<\/tr>\n
PWF.PR.M<\/td>\nFixedReset<\/td>\n100,830<\/td>\nRBC crossed 100,000 at 26.25.
\nYTW SCENARIO
\nMaturity Type : Call
\nMaturity Date\t: 2014-01-31
\nMaturity Price : 25.00
\nEvaluated at bid price : 26.23
\nBid-YTW : 2.87 %<\/td>\n<\/tr>\n
TRP.PR.B<\/td>\nFixedReset<\/td>\n96,980<\/td>\nRBC crossed 70,000 at 24.90.
\nYTW SCENARIO
\nMaturity Type : Limit Maturity
\nMaturity Date\t: 2042-09-11
\nMaturity Price : 23.38
\nEvaluated at bid price : 24.89
\nBid-YTW : 2.69 %<\/td>\n<\/tr>\n
SLF.PR.F<\/td>\nFixedReset<\/td>\n54,565<\/td>\nRBC crossed 50,000 at 26.40.
\nYTW SCENARIO
\nMaturity Type : Call
\nMaturity Date\t: 2014-06-30
\nMaturity Price : 25.00
\nEvaluated at bid price : 26.39
\nBid-YTW : 2.67 %<\/td>\n<\/tr>\n
RY.PR.X<\/td>\nFixedReset<\/td>\n53,635<\/td>\nRBC crossed 50,000 at 26.78.
\nYTW SCENARIO
\nMaturity Type : Call
\nMaturity Date\t: 2014-08-24
\nMaturity Price : 25.00
\nEvaluated at bid price : 26.75
\nBid-YTW : 2.73 %<\/td>\n<\/tr>\n
FTS.PR.H<\/td>\nFixedReset<\/td>\n49,600<\/td>\nRBC crossed 48,700 at 25.50.
\nYTW SCENARIO
\nMaturity Type : Limit Maturity
\nMaturity Date\t: 2042-09-11
\nMaturity Price : 23.59
\nEvaluated at bid price : 25.50
\nBid-YTW : 2.78 %<\/td>\n<\/tr>\n
There were 22 other index-included issues trading in excess of 10,000 shares.<\/td>\n<\/tr>\n<\/table>\n\n\n\n\n\n\n\n\n\n
Wide Spread Highlights<\/strong><\/td>\n<\/tr>\n
Issue<\/td>\nIndex<\/td>\nQuote Data and Yield Notes<\/td>\n<\/tr>\n
BAM.PR.C<\/td>\nFloater<\/td>\nQuote: 17.15 – 17.50
\nSpot Rate : 0.3500
\nAverage : 0.2483<\/p>\n

YTW SCENARIO
\nMaturity Type : Limit Maturity
\nMaturity Date\t: 2042-09-11
\nMaturity Price : 17.15
\nEvaluated at bid price : 17.15
\nBid-YTW : 3.09 %<\/td>\n<\/tr>\n

BAM.PR.X<\/td>\nFixedReset<\/td>\nQuote: 25.02 – 25.20
\nSpot Rate : 0.1800
\nAverage : 0.1164<\/p>\n

YTW SCENARIO
\nMaturity Type : Limit Maturity
\nMaturity Date\t: 2042-09-11
\nMaturity Price : 23.18
\nEvaluated at bid price : 25.02
\nBid-YTW : 3.41 %<\/td>\n<\/tr>\n

SLF.PR.A<\/td>\nDeemed-Retractible<\/td>\nQuote: 24.10 – 24.28
\nSpot Rate : 0.1800
\nAverage : 0.1199<\/p>\n

YTW SCENARIO
\nMaturity Type : Hard Maturity
\nMaturity Date\t: 2022-01-31
\nMaturity Price : 25.00
\nEvaluated at bid price : 24.10
\nBid-YTW : 5.24 %<\/td>\n<\/tr>\n

TRP.PR.A<\/td>\nFixedReset<\/td>\nQuote: 25.41 – 25.67
\nSpot Rate : 0.2600
\nAverage : 0.2074<\/p>\n

YTW SCENARIO
\nMaturity Type : Limit Maturity
\nMaturity Date\t: 2042-09-11
\nMaturity Price : 23.65
\nEvaluated at bid price : 25.41
\nBid-YTW : 3.25 %<\/td>\n<\/tr>\n

SLF.PR.B<\/td>\nDeemed-Retractible<\/td>\nQuote: 24.26 – 24.40
\nSpot Rate : 0.1400
\nAverage : 0.0899<\/p>\n

YTW SCENARIO
\nMaturity Type : Hard Maturity
\nMaturity Date\t: 2022-01-31
\nMaturity Price : 25.00
\nEvaluated at bid price : 24.26
\nBid-YTW : 5.20 %<\/td>\n<\/tr>\n

CM.PR.L<\/td>\nFixedReset<\/td>\nQuote: 26.77 – 26.99
\nSpot Rate : 0.2200
\nAverage : 0.1702<\/p>\n

YTW SCENARIO
\nMaturity Type : Call
\nMaturity Date\t: 2014-04-30
\nMaturity Price : 25.00
\nEvaluated at bid price : 26.77
\nBid-YTW : 2.53 %<\/td>\n<\/tr>\n<\/table>\n","protected":false},"excerpt":{"rendered":"

There’s a new wrinkle in the financial repression chronicles: JPMorgan Chase & Co. (JPM) and Bank of America Corp. are helping clients find an extra $2.6 trillion to back derivatives trades amid signs that a …<\/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-19706","post","type-post","status-publish","format-standard","hentry","category-market-action"],"_links":{"self":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts\/19706","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=19706"}],"version-history":[{"count":0,"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts\/19706\/revisions"}],"wp:attachment":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=19706"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=19706"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=19706"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}