Another boring day, as far as actual news was concerned. An explanation of Lehman’s financing technique looked interesting at first, but turned out to be only legal hairsplitting. OK, OK, so the outward leg of the repo is recorded as a true sale and that delevers the balance sheet. Fair enough. But how did they avoid putting the inward leg on the balance sheet? Fortunately, volume 3 of the Examiner’s report makes that part clear:
Unlike an ordinary repo transaction, Lehman did not record the borrowing of cash from a Repo 105 transaction even though Lehman was obliged to repay the borrowing. Instead, Lehman established a long inventory derivative asset representing the obligation under a forward contract to repurchase the full amount of securities “sold.”3009 As Lehman’s internal Repo 105 Accounting Policy explained, assuming Lehman borrowed $100 cash in exchange for a pledge of $105 of fixed income collateral, Lehman booked a $5 derivative, which represented Lehman’s obligation to repurchase the securities at the end of the term of the repo transaction. The $5 arose from the fact that when it came time to repurchase the pledged securities, Lehman paid $100 cash for $105 worth of securities. The transaction therefore had a $5 value to Lehman reflecting the market value of the “overcollateralization” amount of the Repo 105 transaction. Because it had a positive fair value of $5, the derivative was recorded as an asset under SFAS 133.
Volume stayed perky today, while PerpetualDiscounts lost 8bp and FixedResets gained 14bp, taking yields on the latter down to 3.50%. Yields on FixedResets have only been below 3.50% on three days – ever! – with the all time low being 3.46% on January 11, 2010.
March 12 is the fourth-lowest FixedReset index yield of all time, March 11 is fifth-lowest.
HIMIPref™ Preferred Indices These values reflect the December 2008 revision of the HIMIPref™ Indices Values are provisional and are finalized monthly |
|||||||
Index | Mean Current Yield (at bid) |
Median YTW |
Median Average Trading Value |
Median Mod Dur (YTW) |
Issues | Day’s Perf. | Index Value |
Ratchet | 2.63 % | 2.77 % | 51,166 | 20.85 | 1 | 0.4204 % | 2,103.6 |
FixedFloater | 5.12 % | 3.23 % | 41,025 | 19.90 | 1 | 0.7109 % | 3,089.4 |
Floater | 1.93 % | 1.73 % | 43,450 | 23.22 | 4 | 0.0490 % | 2,389.6 |
OpRet | 4.90 % | 3.03 % | 102,424 | 0.22 | 13 | -0.0745 % | 2,310.1 |
SplitShare | 6.40 % | 6.27 % | 126,761 | 3.70 | 2 | -0.2862 % | 2,131.4 |
Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.0745 % | 2,112.3 |
Perpetual-Premium | 5.88 % | 5.82 % | 124,300 | 5.84 | 7 | 0.1931 % | 1,892.4 |
Perpetual-Discount | 5.90 % | 5.96 % | 173,706 | 13.98 | 71 | -0.0803 % | 1,791.6 |
FixedReset | 5.36 % | 3.50 % | 323,459 | 3.70 | 43 | 0.1354 % | 2,200.2 |
Performance Highlights | |||
Issue | Index | Change | Notes |
HSB.PR.D | Perpetual-Discount | -1.15 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-03-12 Maturity Price : 21.42 Evaluated at bid price : 21.42 Bid-YTW : 5.86 % |
HSB.PR.C | Perpetual-Discount | -1.05 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-03-12 Maturity Price : 21.50 Evaluated at bid price : 21.77 Bid-YTW : 5.86 % |
TRI.PR.B | Floater | 1.04 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-03-12 Maturity Price : 24.00 Evaluated at bid price : 24.25 Bid-YTW : 1.60 % |
BAM.PR.I | OpRet | 1.15 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2010-07-30 Maturity Price : 25.50 Evaluated at bid price : 25.56 Bid-YTW : 4.03 % |
Volume Highlights | |||
Issue | Index | Shares Traded |
Notes |
TRP.PR.B | FixedReset | 134,422 | Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-03-12 Maturity Price : 24.87 Evaluated at bid price : 24.92 Bid-YTW : 3.94 % |
TD.PR.M | OpRet | 126,260 | RBC bought 10,000 from National at 26.25; National crossed 25,000 at 26.12. RBC crossed 22,000 at 26.15, then bought 11,500 from National at the same price. National crossed 30,000 at 26.15. YTW SCENARIO Maturity Type : Call Maturity Date : 2010-05-30 Maturity Price : 25.75 Evaluated at bid price : 26.10 Bid-YTW : 0.66 % |
ACO.PR.A | OpRet | 63,748 | CIBC crossed 24,900 at 25.52. YTW SCENARIO Maturity Type : Call Maturity Date : 2010-12-31 Maturity Price : 25.00 Evaluated at bid price : 25.51 Bid-YTW : 3.38 % |
BMO.PR.P | FixedReset | 60,615 | TD crossed 50,000 at 27.10. YTW SCENARIO Maturity Type : Call Maturity Date : 2015-03-27 Maturity Price : 25.00 Evaluated at bid price : 27.09 Bid-YTW : 3.63 % |
RY.PR.I | FixedReset | 55,439 | RB crossed 21,000 at 26.47 and two blocks, of 10,000 and 15,000, at 26.45. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-03-26 Maturity Price : 25.00 Evaluated at bid price : 26.40 Bid-YTW : 3.55 % |
TD.PR.C | FixedReset | 44,750 | RBC crossed 10,000 at 27.10; TD crossed 17,200 at the same price. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-03-02 Maturity Price : 25.00 Evaluated at bid price : 27.08 Bid-YTW : 3.51 % |
There were 38 other index-included issues trading in excess of 10,000 shares. |
Is YTW for a fixed reset trading over issue price always if it gets called after the initial fixed period? Is there any possibility YTW would be lower after the reset if the bp peg was low? Are there any issues where this happens?
Holy Smokes, bitey, do you have me under surveillance or what?
BAM.PR.R is one such issue and I am in the middle of writing up a discussion of both it and the effect in general for this month’s PrefLetter.
Its the new glasses I bought. Now put that coffee down on the right side of the desk, it will spill if you put it on the left side.
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