{"id":6884,"date":"2009-06-12T22:59:24","date_gmt":"2009-06-13T02:59:24","guid":{"rendered":"http:\/\/www.prefblog.com\/?p=6884"},"modified":"2009-06-12T22:59:24","modified_gmt":"2009-06-13T02:59:24","slug":"june-12-2009","status":"publish","type":"post","link":"https:\/\/prefblog.com\/?p=6884","title":{"rendered":"June 12, 2009"},"content":{"rendered":"

More trader games in the CDS market – and now the rules might change<\/a>:<\/p>\n

At issue in the Amherst trades is whether sellers of protection on mortgage bonds can purchase loans underlying the debt at above-market prices to prevent a default that would trigger payments to buyers of the contracts. Credit-default swaps pay the buyer if the securities aren\u2019t repaid as expected.<\/p>\n

The call of the securities at their face value of $29 million, the amount remaining in the 2005 subprime-mortgage bond issue, caused the banks to lose money. Bankers on the American Securitization Forum call probably couldn\u2019t ban the strategy for existing trades, the people said.<\/p>\n

Proposals included creating agreements for new swaps that would force sellers to disclose whether they have the right to call the securities, and \u201cbest practices\u201d guidelines to say such trades shouldn\u2019t be executed, they said.<\/p><\/blockquote>\n

$29-million? Banks are prepared to admit that their traders lost a lot of money in a $29-million market?<\/p>\n

They haven’t learned a damn thing, have they? Giving a block of capital to some kid with an MBA but not enough brains to realize you don’t play in a rigged market – or one that’s small enough to rig. $29-million? That’s not even a big ticket.<\/p>\n

What does buying CDS protection mean, anyway? It’s nothing more nor less than shorting a bond. What kind of moron shorts into a $29-million market? What kind of useless twerp is the moron’s supervisor?<\/p>\n

Let’s not have any more rules. Let’s just see a few bozos get fired. Or, at least, eating their losses like big boys and learning from the experience. As I have stressed many times on this blog, debt decoupling<\/a> can result in strange things happening … particularly in a rinky dink $29-million market.<\/p>\n

The Federal Reserve Bank of Boston has released<\/a> a working paper by Todd Prono that looks interesting, but which I don’t have time to read now. So, without comment, here’s the abstract:<\/p>\n

A pricing restriction is developed to test the validity of the CAPM conditional on a prior belief about the correlation between the true market return and the proxy return used in the test. Distinguishing this pricing restriction from competing tests also based upon the relative efficiency of the proxy return is a consideration for the proxy\u2019s mismeasurement of the market return. Failure to account for this mismeasurement biases tests of the CAPM towards rejection by overstating the inefficiency of the proxy. A time-varying version of this pricing restriction links mismeasurement of the market return to time-variation in beta<\/p><\/blockquote>\n

Pretty much a nothing day in the major sectors of the market, but volume continued heavy and Floating Rate issues continued to shine.<\/p>\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>\n1.5718 %<\/td>\n1,332.8<\/td>\n<\/tr>\n
FixedFloater<\/td>\n6.87 %<\/td>\n5.38 %<\/td>\n30,438<\/td>\n16.45<\/td>\n1<\/td>\n3.4618 %<\/td>\n2,197.3<\/td>\n<\/tr>\n
Floater<\/td>\n2.86 %<\/td>\n3.21 %<\/td>\n85,498<\/td>\n19.22<\/td>\n3<\/td>\n1.5718 %<\/td>\n1,665.1<\/td>\n<\/tr>\n
OpRet<\/td>\n4.98 %<\/td>\n3.81 %<\/td>\n141,865<\/td>\n3.63<\/td>\n14<\/td>\n0.0849 %<\/td>\n2,188.3<\/td>\n<\/tr>\n
SplitShare<\/td>\n5.82 %<\/td>\n5.97 %<\/td>\n57,155<\/td>\n4.24<\/td>\n3<\/td>\n-0.2435 %<\/td>\n1,875.2<\/td>\n<\/tr>\n
Interest-Bearing<\/td>\n5.99 %<\/td>\n7.46 %<\/td>\n23,160<\/td>\n0.53<\/td>\n1<\/td>\n0.0999 %<\/td>\n1,991.2<\/td>\n<\/tr>\n
Perpetual-Premium<\/td>\n0.00 %<\/td>\n0.00 %<\/td>\n0<\/td>\n0.00<\/td>\n0<\/td>\n-0.0655 %<\/td>\n1,737.9<\/td>\n<\/tr>\n
Perpetual-Discount<\/td>\n6.32 %<\/td>\n6.31 %<\/td>\n159,942<\/td>\n13.46<\/td>\n71<\/td>\n-0.0655 %<\/td>\n1,600.5<\/td>\n<\/tr>\n
FixedReset<\/td>\n5.69 %<\/td>\n4.85 %<\/td>\n542,562<\/td>\n4.37<\/td>\n39<\/td>\n0.0900 %<\/td>\n2,008.5<\/td>\n<\/tr>\n<\/table>\n\n\n\n\n\n\n\n\n\n\n\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
IAG.PR.A<\/td>\nPerpetual-Discount<\/td>\n-2.80 %<\/td>\nYTW SCENARIO
\nMaturity Type : Limit Maturity
\nMaturity Date\t: 2039-06-12
\nMaturity Price : 17.01
\nEvaluated at bid price : 17.01
\nBid-YTW : 6.79 %<\/td>\n<\/tr>\n
CU.PR.B<\/td>\nPerpetual-Discount<\/td>\n-1.90 %<\/td>\nYTW SCENARIO
\nMaturity Type : Limit Maturity
\nMaturity Date\t: 2039-06-12
\nMaturity Price : 24.53
\nEvaluated at bid price : 24.83
\nBid-YTW : 6.08 %<\/td>\n<\/tr>\n
BAM.PR.N<\/td>\nPerpetual-Discount<\/td>\n-1.53 %<\/td>\nYTW SCENARIO
\nMaturity Type : Limit Maturity
\nMaturity Date\t: 2039-06-12
\nMaturity Price : 15.45
\nEvaluated at bid price : 15.45
\nBid-YTW : 7.73 %<\/td>\n<\/tr>\n
CIU.PR.A<\/td>\nPerpetual-Discount<\/td>\n-1.52 %<\/td>\nYTW SCENARIO
\nMaturity Type : Limit Maturity
\nMaturity Date\t: 2039-06-12
\nMaturity Price : 18.76
\nEvaluated at bid price : 18.76
\nBid-YTW : 6.19 %<\/td>\n<\/tr>\n
GWO.PR.I<\/td>\nPerpetual-Discount<\/td>\n-1.25 %<\/td>\nYTW SCENARIO
\nMaturity Type : Limit Maturity
\nMaturity Date\t: 2039-06-12
\nMaturity Price : 17.41
\nEvaluated at bid price : 17.41
\nBid-YTW : 6.49 %<\/td>\n<\/tr>\n
GWO.PR.G<\/td>\nPerpetual-Discount<\/td>\n-1.24 %<\/td>\nYTW SCENARIO
\nMaturity Type : Limit Maturity
\nMaturity Date\t: 2039-06-12
\nMaturity Price : 19.92
\nEvaluated at bid price : 19.92
\nBid-YTW : 6.55 %<\/td>\n<\/tr>\n
BNA.PR.C<\/td>\nSplitShare<\/td>\n-1.02 %<\/td>\nAsset coverage of 1.9-:1 as of May 31, according to the company<\/a>.
\nYTW SCENARIO
\nMaturity Type : Hard Maturity
\nMaturity Date\t: 2019-01-10
\nMaturity Price : 25.00
\nEvaluated at bid price : 15.50
\nBid-YTW : 10.91 %<\/td>\n<\/tr>\n
ELF.PR.F<\/td>\nPerpetual-Discount<\/td>\n1.35 %<\/td>\nYTW SCENARIO
\nMaturity Type : Limit Maturity
\nMaturity Date\t: 2039-06-12
\nMaturity Price : 18.76
\nEvaluated at bid price : 18.76
\nBid-YTW : 7.22 %<\/td>\n<\/tr>\n
BAM.PR.B<\/td>\nFloater<\/td>\n1.41 %<\/td>\nYTW SCENARIO
\nMaturity Type : Limit Maturity
\nMaturity Date\t: 2039-06-12
\nMaturity Price : 12.23
\nEvaluated at bid price : 12.23
\nBid-YTW : 3.21 %<\/td>\n<\/tr>\n
BAM.PR.O<\/td>\nOpRet<\/td>\n1.47 %<\/td>\nYTW SCENARIO
\nMaturity Type : Option Certainty
\nMaturity Date\t: 2013-06-30
\nMaturity Price : 25.00
\nEvaluated at bid price : 23.50
\nBid-YTW : 6.69 %<\/td>\n<\/tr>\n
HSB.PR.C<\/td>\nPerpetual-Discount<\/td>\n1.65 %<\/td>\nYTW SCENARIO
\nMaturity Type : Limit Maturity
\nMaturity Date\t: 2039-06-12
\nMaturity Price : 20.30
\nEvaluated at bid price : 20.30
\nBid-YTW : 6.31 %<\/td>\n<\/tr>\n
MFC.PR.B<\/td>\nPerpetual-Discount<\/td>\n1.67 %<\/td>\nYTW SCENARIO
\nMaturity Type : Limit Maturity
\nMaturity Date\t: 2039-06-12
\nMaturity Price : 18.86
\nEvaluated at bid price : 18.86
\nBid-YTW : 6.20 %<\/td>\n<\/tr>\n
TRI.PR.B<\/td>\nFloater<\/td>\n2.22 %<\/td>\nYTW SCENARIO
\nMaturity Type : Limit Maturity
\nMaturity Date\t: 2039-06-12
\nMaturity Price : 17.00
\nEvaluated at bid price : 17.00
\nBid-YTW : 2.31 %<\/td>\n<\/tr>\n
BAM.PR.G<\/td>\nFixedFloater<\/td>\n3.46 %<\/td>\nYTW SCENARIO
\nMaturity Type : Limit Maturity
\nMaturity Date\t: 2039-06-12
\nMaturity Price : 25.00
\nEvaluated at bid price : 15.84
\nBid-YTW : 5.38 %<\/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
TD.PR.O<\/td>\nPerpetual-Discount<\/td>\n127,185<\/td>\nNational crossed 110,000 at 19.91.
\nYTW SCENARIO
\nMaturity Type : Limit Maturity
\nMaturity Date\t: 2039-06-12
\nMaturity Price : 19.93
\nEvaluated at bid price : 19.93
\nBid-YTW : 6.18 %<\/td>\n<\/tr>\n
RY.PR.R<\/td>\nFixedReset<\/td>\n122,035<\/td>\nNational crossed 50,000 at 26.95; RBC crossed 10,000 at 26.97, then another 29,100 at 26.95.
\nYTW SCENARIO
\nMaturity Type : Call
\nMaturity Date\t: 2014-03-26
\nMaturity Price : 25.00
\nEvaluated at bid price : 27.00
\nBid-YTW : 4.49 %<\/td>\n<\/tr>\n
CIU.PR.B<\/td>\nFixedReset<\/td>\n101,400<\/td>\nDesjardins crossed 100,000 at 27.50.
\nYTW SCENARIO
\nMaturity Type : Call
\nMaturity Date\t: 2014-07-01
\nMaturity Price : 25.00
\nEvaluated at bid price : 27.55
\nBid-YTW : 4.54 %<\/td>\n<\/tr>\n
BAM.PR.P<\/td>\nFixedReset<\/td>\n91,364<\/td>\nRecent new issue<\/a>.
\nYTW SCENARIO
\nMaturity Type : Call
\nMaturity Date\t: 2014-10-30
\nMaturity Price : 25.00
\nEvaluated at bid price : 25.59
\nBid-YTW : 6.57 %<\/td>\n<\/tr>\n
MFC.PR.E<\/td>\nFixedReset<\/td>\n70,675<\/td>\nRecent new issue<\/a>.
\nYTW SCENARIO
\nMaturity Type : Call
\nMaturity Date\t: 2014-10-19
\nMaturity Price : 25.00
\nEvaluated at bid price : 25.23
\nBid-YTW : 5.48 %<\/td>\n<\/tr>\n
CM.PR.I<\/td>\nPerpetual-Discount<\/td>\n62,780<\/td>\nNesbitt crossed 40,000 at 18.60.
\nYTW SCENARIO
\nMaturity Type : Limit Maturity
\nMaturity Date\t: 2039-06-12
\nMaturity Price : 18.51
\nEvaluated at bid price : 18.51
\nBid-YTW : 6.46 %<\/td>\n<\/tr>\n
There were 43 other index-included issues trading in excess of 10,000 shares.<\/td>\n<\/tr>\n<\/table>\n","protected":false},"excerpt":{"rendered":"

More trader games in the CDS market – and now the rules might change: At issue in the Amherst trades is whether sellers of protection on mortgage bonds can purchase loans underlying the debt at …<\/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-6884","post","type-post","status-publish","format-standard","hentry","category-market-action"],"_links":{"self":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts\/6884","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=6884"}],"version-history":[{"count":0,"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts\/6884\/revisions"}],"wp:attachment":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=6884"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=6884"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=6884"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}