{"id":27219,"date":"2014-12-18T20:50:10","date_gmt":"2014-12-19T01:50:10","guid":{"rendered":"http:\/\/prefblog.com\/?p=27219"},"modified":"2014-12-18T20:50:10","modified_gmt":"2014-12-19T01:50:10","slug":"december-18-2014","status":"publish","type":"post","link":"https:\/\/prefblog.com\/?p=27219","title":{"rendered":"December 18, 2014"},"content":{"rendered":"

US equities were on fire today<\/a>:<\/p>\n

The Dow Jones Industrial Average surged the most since 2011 and the Standard & Poor\u2019s 500 Index capped its best two-day gain in three years as global equities rallied on the Federal Reserve\u2019s pledge to be patient on boosting rates.<\/p>\n

The S&P 500 added 2.4 percent to 2,061.23 at 4 p.m. in New York. The index climbed 4.5 percent over two days, the most since November 2011. The Dow gained 421.28 points, or 2.4 percent, to 17,778.15, the biggest one-day jump since December 2011.<\/p><\/blockquote>\n

Canadian equities too<\/a>!:<\/p>\n

Canadian stocks rose, capping the biggest three-day surge in more than three years, as consumer-staples and health-care companies led gains amid a global rally following the Federal Reserve\u2019s pledge to be patient on boosting rates.<\/p>\n

Nine of the 10 main groups in the Standard & Poor\u2019s\/TSX Composite Index (SPTSX) advanced. Alimentation Couche-Tard Inc. surged 8.3 percent to pace gains in consumer shares, while raw-materials stocks jumped 2.1 percent.<\/p>\n

The S&P\/TSX Index increased 132.87 points, or 0.9 percent, to 14,346.75 at 4 p.m. in Toronto. The equity gauge has surged 4.7 percent in the past three days, the most since November 2011. The index is up 5.3 percent for the year.<\/p><\/blockquote>\n

Junk seems to have hit a bottom<\/a>:<\/p>\n

Demand for junk-rated debt is bouncing back from a selloff triggered by plunging oil prices on optimism that the Federal Reserve will be in no rush to raise interest rates next year.<\/p>\n

The risk premium on the Markit CDX North American High Yield Index, a credit-default swaps benchmark tied to the debt of 100 speculative-grade companies, declined 14.7 basis points to 354.3 basis points. That follows yesterday\u2019s drop resulting in the biggest two-day decline for the index since January 2013. The average yield on speculative-grade debt contracted for the first time this month on Dec. 17 dropping to 7.1 percent, according to Bank of America Merrill Lynch index data.<\/p><\/blockquote>\n

Treasuries, not so much<\/a>:<\/p>\n

Treasuries fell, with 10-year note yields rising the most during two days in 17 months, after Federal Reserve Chair Janet Yellen suggested a \u201cpatient\u201d approach to interest rates may translate into an increase by the middle of next year.<\/p>\n

The yield on the 30-year bond touched the highest level in a week as Yellen said yesterday at a news conference that a rate increase won\u2019t take place for \u201cat least the next couple of meetings.\u201d The difference between two- and 30-year yields widened for the first time in six days as longer-maturity Treasuries led declines. Stocks rose by the most in two years. The Treasury auctioned $16 billion of five-year inflation-indexed securities at the highest yield since April 2010.
…<\/b>
The benchmark 10-year yield rose seven basis points, or 0.07 percentage point, to 2.21 percent at 4:59 p.m. New York time, according to Bloomberg Bond Trader data. The 2.25 percent note maturing in November 2024 fell 20\/32, or $6.25 per $1,000 face amount, to 100 3\/8. The yield has increased as much as 17 basis points the past two days, the most since July 2013.
…<\/b>
Thirty-year bond yields added nine basis points to 2.82 percent, reaching the highest level since Dec. 11. Two-year yields gained one basis point to 0.63 percent.<\/p>\n

Crude oil futures fell 2.8 percent to $54.89 a barrel in New York, after reaching $53.60 on Dec. 16, a five-year low.<\/p><\/blockquote>\n

Pay attention to the slope of the yield curve! While FixedResets are more-or-less immune to changes in five-year rates, the yield they pay has to compete with fixed rate perpetual instruments! It is not impossible that at some point there may be a reprise of what happened to Floaters in the Credit Crunch<\/a>.<\/p>\n

And Credit Crunch capital destruction due to housing prices might even be rivalled by capital destruction due to oil prices<\/a>:<\/p>\n

In a stunning analysis this week, Goldman Sachs found almost $1 trillion in investments in future oil projects at risk. They looked at 400 of the world\u2019s largest new oil and gas fields — excluding U.S. shale — and found projects representing $930 billion of future investment that are no longer profitable with Brent crude at $70. In the U.S., the shale-oil party isn\u2019t over yet, but zombies are beginning to crash it.<\/p><\/blockquote>\n

Switzerland has a problem that many might like to have<\/a>:<\/p>\n

Switzerland\u2019s franc weakened the most in 18 months versus the euro after the nation\u2019s central bank introduced negative interest rates to defend the currency\u2019s cap.<\/p>\n

The shared currency fell for a second day against the dollar as the Swiss National Bank decision boosted speculation the European Central Bank will expand stimulus measures next year.
…<\/b>
The franc weakened against all of its 16 major peers as the Zurich-based SNB introduced a negative deposit rate for the first time since the 1970s, saying it was prepared to buy unlimited foreign currency to shield the 1.20-per-euro cap and take further measures if needed.<\/p>\n

The Swiss currency appreciated to within 0.07 percent of the cap yesterday, reaching the strongest level since September 2012. Pressure on the cap has bolstered speculation the ECB will start a large-scale sovereign-bond buying program, a measure that may weaken the euro against its peers.<\/p>\n

SNB President Thomas Jordan cited turmoil in Russia as a \u201cmajor contributory factor\u201d to its rate decision.<\/p>\n

\u201cIf money is moving out of these high-risk geopolitical countries, where do they tend to move this money to? Switzerland,\u201d said FXCM\u2019s Song. The rates move was \u201ca way for the SNB to discourage that.\u201d<\/p><\/blockquote>\n

Is this what they mean by “captive market<\/a>“?:<\/p>\n

Take [journalist Sarah] Koenig\u2019s 40 hours of taped calls with [prisoner Adnan] Syed, a detail she mentions in the second-to-last episode (the finale makes its debut on Thursday morning). In 2013, the top rate for telephone calls to prisons in the U.S. was 89\u00a2 per minute plus a $3.95 per-call charge, according to data collected by the Federal Communications Commission. At that rate, Koenig and Syed conversations could have easily exceeded $2,500. Representatives for \u201cSerial\u201d and Global Tel-Link declined to comment for this story.
…<\/b>
The market for inmate phone services is unusual, to say the least. The prisons generally sign exclusive contracts with specialized phone carriers. Instead of competing by offering the lowest-priced calls or the best sound quality, companies such as Global Tel-Link win contracts largely by offering to pay the prisons a portion of the money from inmates\u2019 phone bills. Some carriers pay the prisons up to 96 percent of their call revenue, according to the FCC.<\/p><\/blockquote>\n

There was a good bounce in the Canadian preferred share market today, with PerpetualDiscounts gaining 13bp, FixedResets up 17bp and DeemedRetractibles winning 37bp. There is yet another very lengthy Performance Highlights list. Volume was on the high side of average.<\/p>\n

For as long as the FixedReset market is so violently unsettled, I\u2019ll keep publishing updates of the more interesting and meaningful series of FixedResets\u2019 Implied Volatilities. This doesn\u2019t include Enbridge because although Enbridge has a large number of issues outstanding, all of which are quite liquid, the range of Issue Reset Spreads is too small for decent conclusions. The low is 212bp (ENB.PR.H; second-lowest is ENB.PR.D at 237bp) and the high is a mere 268 for ENB.PF.G.<\/p>\n

Remember that all rich \/cheap assessments are:<\/p>\n