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Daily Market Commentary

Goldman's prediction of more credit losses to come has started us off on a darker note this morning.  Credit indicators, having flashed positive for several days, have also become slightly negative.  The TED spread, having rallied off of it's highs near 220 last week dropped 10 bps overnight.


Yesterday, the Bank of Montreal issued over a yard of new paper.  $250 million in a preferred deal (once again a perpetual, non-cumulative) with a coupon of 5.80%  Again - we'll state that we are looking for some feature to these new issues that favour the investor.  A perpetual note where BMO has the right to stop the dividends and not pay them in arrears leaves all the options in their hands.  Frankly we've been surprised that there haven't been issues with more favourable terms to the investors.  Each subsequent pref issue that has hit the street in the last several months has come with a progressively higher coupon, but the terms haven't changed.  BMO's issue should serve to lower the bid on most secondary prefs as well, as have many of these new issues hitting the market.


BMO also came to market with a new subordinated debenture in the ten year term.  It came at a huge concession to the market, (40 bps cheaper than bonds in the secondary market) and the deal sold very well, almost doubling in size from initial indications.  However, they had originally indicated new issue pricing of +260bps, and they cheapened it up to +270 at issue (presumably to get the size done).  This morning they are offered at +255 bps, with little interest so far.  With a 6.17% coupon, this debt looks expensive to the BMO (cheap to the investor? we're not sure yet), and the large concession offered indicates they wanted to get the deal done.  Watch Brad Smith's research for further analysis on the BMO.



The volatile US Durable Goods disappointed this morning.  This is always a crazy number, but two disappointments in a row have the bond traders paying attention and bidding up the short end of the curve this morning.  Watch new home sales today at 10am for more news from the sick housing sector.



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