December 14, 2011

A sign of things to come?

Credit Agricole SA (ACA), France’s second- largest bank by assets, said it expects to report a loss for 2011 and will eliminate 2,350 jobs at its investment-banking and consumer finance units.

Credit Agricole will book about 2.5 billion euros ($3.24 billion) in writedowns on investments, including its stake in Spain’s Bankinter SA and Banco Espirito Santo SA of Portugal, the bank, based outside Paris, said in an e-mailed statement today.

The company scrapped its dividend for 2011 and said it can’t confirm its 2014 goals because of “the lack of visibility on the economic and financial climate.” The lender joins BNP Paribas SA and Societe Generale SA in reducing corporate- and investment-banking staff.

The overall picture is dire:

Italy had to pay the most in 14 years to sell five-year bonds as Parliament rushes to pass a 30 billion-euro ($39 billion) budget plan that Prime Minister Mario Monti says will bring down record borrowing costs.

The Rome-based Treasury sold 3 billion euros of the bonds, the maximum for the sale, to yield 6.47 percent, the most since May 1997 and up from 6.29 percent at the last auction on Nov. 14.

The euro region’s third-largest economy has to repay about 53 billion euros in debt in the first quarter from the region’s total maturing debt of 157 billion euros, according to UBS AG. It owes a further 3.2 billion euros in interest payments based on the average five-year yield of the past three months.

The yield on the benchmark 10-year bond was 6.69 percent after the auction at 12:46 p.m. in Rome, up one basis point from yesterday. That pushed the difference with German bonds to 4.69 percentage points. The euro extended its decline against the dollar, trading below $1.30 for the first time since Jan. 12.

On a brighter note, DBRS confirmed the UK:

DBRS Ratings Limited (DBRS) has today confirmed the AAA ratings on the foreign and local currency securities of the United Kingdom (the U.K. or Britain). The ratings are underpinned by the size, openness and diversity of the British economy, its fiscal and monetary policy flexibility, a historical track record of fiscal consolidation, and relatively flexible product and labour markets. In addition, the U.K. benefits from having deep, efficient domestic capital markets and the sterling’s status as a secondary reserve currency.

All this is having an effect:

U.S. stocks retreated, sending the Standard & Poor’s 500 Index lower for a third straight day, as growing funding stress in Europe fueled concern the region is struggling to contain its sovereign debt crisis.

First Solar Inc. (FSLR), the world’s largest maker of thin-film solar panels, plunged 22 percent after reducing profit estimates and saying it will cut about 100 jobs.

The S&P 500 declined 0.9 percent to 1,214.16 at 3:14 p.m. New York time. The benchmark measure for American equities has fallen 3.3 percent in three days. The Dow Jones Industrial Average decreased 123.82 points, or 1 percent, to 11,831.12. The Nasdaq Composite Index (CCMP) slumped 1.5 percent to 2,541.56 as Apple Inc. (AAPL), the largest technology company, lost 2.3 percent.

Still, it’s nice to see a solar energy company get into trouble. Perhaps those hundred guys laid off can find work doing something useful.

Here’s another chapter about excitable bond markets:

Investors, spooked by bank analyst Meredith Whitney’s prediction of “hundreds of billions of dollars” of municipal defaults in 2011, started fleeing the market in record numbers, sending interest rates soaring, according to Craig Sheagren, the hospital’s chief financial officer. As bond buyers ran, JPMorgan Chase & Co. (JPM) and other underwriters stepped up with offers of loans, letting the institution bypass the public markets.

Refuting Whitney’s forecast, which helped send borrowing costs to two-year highs in January, the $3.7 trillion municipal- bond market rebounded this year, generating an average total return of 10 percent through Dec. 12, better than U.S. Treasuries and corporate bonds, Bank of America Merrill Lynch indexes show. Munis also trounced equities as the Standard & Poor’s 500 Index lost (SPX) 0.6 percent in the same period.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts gaining 10bp, FixedResets losing 21bp and DeemedRetractibles down 20bp. There was quite a bit of volatility, mostly to the downside, with MFC and SLF getting hammered. Volume was below average.

PerpetualDiscounts now yield 5.18%, equivalent to 6.73% at the standard equivalency factor of 1.3x. Long corporates are now at about 4.65%, so the pre-tax interest-equivalent spread is now about 210bp, a significant widening from the 195bp reported December 7.

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 0.00 % 0.00 % 0 0.00 0 0.2905 % 2,044.2
FixedFloater 4.88 % 4.63 % 36,607 17.07 1 0.5168 % 3,155.1
Floater 3.26 % 3.60 % 68,338 18.31 3 0.2905 % 2,207.2
OpRet 4.92 % 1.05 % 56,478 1.42 6 -0.0064 % 2,482.7
SplitShare 5.80 % 6.50 % 61,476 5.11 3 0.0423 % 2,529.6
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.0064 % 2,270.2
Perpetual-Premium 5.50 % 2.95 % 89,434 0.85 18 -0.0141 % 2,166.1
Perpetual-Discount 5.22 % 5.18 % 105,263 15.09 12 0.1033 % 2,320.6
FixedReset 5.11 % 3.06 % 217,430 2.48 64 -0.2143 % 2,337.9
Deemed-Retractible 5.04 % 4.26 % 190,950 3.37 46 -0.1984 % 2,225.5
Performance Highlights
Issue Index Change Notes
SLF.PR.G FixedReset -2.24 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.30
Bid-YTW : 4.68 %
SLF.PR.H FixedReset -1.85 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.77
Bid-YTW : 4.81 %
SLF.PR.D Deemed-Retractible -1.62 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 20.60
Bid-YTW : 6.90 %
MFC.PR.B Deemed-Retractible -1.57 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.29
Bid-YTW : 6.72 %
SLF.PR.C Deemed-Retractible -1.53 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 20.58
Bid-YTW : 6.91 %
MFC.PR.F FixedReset -1.43 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.51
Bid-YTW : 4.16 %
SLF.PR.E Deemed-Retractible -1.38 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 20.73
Bid-YTW : 6.88 %
SLF.PR.B Deemed-Retractible -1.35 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.91
Bid-YTW : 6.49 %
BAM.PR.X FixedReset -1.32 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-12-14
Maturity Price : 22.99
Evaluated at bid price : 24.60
Bid-YTW : 3.42 %
GWO.PR.N FixedReset -1.21 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.83
Bid-YTW : 4.10 %
MFC.PR.A OpRet -1.19 % YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2015-12-18
Maturity Price : 25.00
Evaluated at bid price : 24.95
Bid-YTW : 4.16 %
SLF.PR.A Deemed-Retractible -1.18 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.70
Bid-YTW : 6.56 %
PWF.PR.M FixedReset -1.04 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-01-31
Maturity Price : 25.00
Evaluated at bid price : 26.65
Bid-YTW : 3.14 %
BAM.PR.B Floater -1.02 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-12-14
Maturity Price : 14.55
Evaluated at bid price : 14.55
Bid-YTW : 3.60 %
BAM.PR.O OpRet 1.05 % YTW SCENARIO
Maturity Type : Option Certainty
Maturity Date : 2013-06-30
Maturity Price : 25.00
Evaluated at bid price : 25.90
Bid-YTW : 2.47 %
PWF.PR.A Floater 1.32 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-12-14
Maturity Price : 19.25
Evaluated at bid price : 19.25
Bid-YTW : 2.74 %
Volume Highlights
Issue Index Shares
Traded
Notes
MFC.PR.G FixedReset 835,965 Underwriters’ clearance sale.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.81
Bid-YTW : 4.94 %
HSE.PR.A FixedReset 166,546 Nesbitt sold 10,600 to Scotia at 25.25 and 50,000 to RBC at the same price. RBC crossed 15,000 at 25.25. Nesbitt sold 28,000 to Desjardins at the same price and RBC crossed 21,300 at the same price again.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-12-14
Maturity Price : 23.30
Evaluated at bid price : 25.26
Bid-YTW : 3.11 %
FTS.PR.H FixedReset 117,900 Desjardins crossed blocks of 50,000 shares, 30,000 and 31,800, all at 25.50.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-12-14
Maturity Price : 23.43
Evaluated at bid price : 25.35
Bid-YTW : 2.78 %
MFC.PR.E FixedReset 98,230 Nesbitt bought 20,300 from RBC at 25.70, then crossed 50,000 at 25.79.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.66
Bid-YTW : 4.54 %
MFC.PR.A OpRet 78,495 TD crossed 25,000 at 24.95, then sold 25,000 to anonymous at the same price.
YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2015-12-18
Maturity Price : 25.00
Evaluated at bid price : 24.95
Bid-YTW : 4.16 %
CM.PR.E Perpetual-Premium 73,805 Desjardins crossed 39,000 at 25.35.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2012-10-31
Maturity Price : 25.00
Evaluated at bid price : 25.29
Bid-YTW : 5.04 %
There were 25 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
SLF.PR.G FixedReset Quote: 22.30 – 23.35
Spot Rate : 1.0500
Average : 0.6231

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.30
Bid-YTW : 4.68 %

BNA.PR.E SplitShare Quote: 23.05 – 23.90
Spot Rate : 0.8500
Average : 0.5466

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2017-12-10
Maturity Price : 25.00
Evaluated at bid price : 23.05
Bid-YTW : 6.50 %

RY.PR.C Deemed-Retractible Quote: 25.38 – 25.69
Spot Rate : 0.3100
Average : 0.1906

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-11-24
Maturity Price : 25.00
Evaluated at bid price : 25.38
Bid-YTW : 4.27 %

IAG.PR.F Deemed-Retractible Quote: 25.60 – 25.92
Spot Rate : 0.3200
Average : 0.2379

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.60
Bid-YTW : 5.59 %

BMO.PR.N FixedReset Quote: 27.21 – 27.40
Spot Rate : 0.1900
Average : 0.1236

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-02-25
Maturity Price : 25.00
Evaluated at bid price : 27.21
Bid-YTW : 2.52 %

PWF.PR.M FixedReset Quote: 26.65 – 26.85
Spot Rate : 0.2000
Average : 0.1360

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-01-31
Maturity Price : 25.00
Evaluated at bid price : 26.65
Bid-YTW : 3.14 %

One Response to “December 14, 2011”

  1. […] PerpetualDiscounts now yield 5.11%, equivalent to 6.64% interest at the standard equivalency factor of 1.3x. Long corporates now yield about 4.6% so the pre-tax interest-equivalent spread (also called the Seniority Spread) is now about 205bp, a slight tightening from the 210bp reported December 14. […]

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