Liquidity crunch hits T-bill market
TAVIA GRANT , From Saturday's Globe and Mail
Ewen Mackenzie has been trading securities for nearly three decades, half of that as head of his Thornhill, Ont., investment firm. And he's always been able to buy short-term government treasury bills — until Friday.
Like scores of other fixed-income investors, Mr. Mackenzie was looking to park money in one of the safest spots in Canada — government-backed bills. But when he called one of the Big Five banks Friday to place about $250,000 in 30-day and 90-day T-bills, he was told they weren't available.
The experience illustrates just how rattled investors are. Their aversion to the perceived risk of anything connected with non-bank asset-backed commercial paper (ABCP) means many are fleeing money market funds altogether for the haven of government-backed securities.
"I've been in this business for 28 years and I've never heard of anything like that before," said Mr. Mackenzie, who runs Ewen Mackenzie Investment Advisors Ltd. "I can only surmise that individual investors are bailing out of money market funds and buying Treasury bills and maybe they've bought them all up."
Treasury bills are sold at an auction every second Tuesday through the Bank of Canada. They're bought by investment dealers, who then typically resell them to retail investors.
Mr. Mackenzie wants the central bank to help soothe the liquidity problems by issuing more bills.
"If I'm getting a better rate than in the money market fund and it's got the guarantees of the government of Canada, it's a prudent thing to do. And now it would appear that that's been taken away from me," he said.
Fresh evidence of that came Friday when the Finance Department said the budget surplus for fiscal 2007-08 will be much higher than the $3-billion it had projected.
Canadian Treasury bill prices rose for a 14th-straight day, pushing the yield on a 90-day Government of Canada bill down 11 basis points Friday to a scant 3.80 per cent from 3.91 per cent Thursday. (A basis point is 1/100th of a percentage point.) Three weeks ago, the yield was 4.58 per cent, with the sudden drop indicative of the premium investors are willing to pay for debt backed by the Canadian government as they move into only the safest paper amid concerns about the safety of asset-backed commercial paper, which has been for years a substitute for scarce T-bills.
In the U.S., Treasury bill demand is easing after a surge last week and investors are showing confidence in asset backed commercial paper, signified by a shrinking spread between the yields on the two types of investments.
Appetite for T-bills surged in recent days after Coventree Inc. said it has been unable to find buyers for millions worth of ABCP. Fear that troubles in that segment could contaminate Canada's commercial paper market caused widening in spreads between commercial paper and one-month T-bills.
"To say that [T-bills] are scarce relative to what's out there is definitely true," said Mark Chandler, a fixed-income strategist at RBC Dominion Securities Inc.
That poses challenges for larger investors with a mandate to put their money into safe, low-risk vehicles.
Now, "concern about credit generally ... has the regular investors scrambling," he said.
"There's still a lot of confusion and until that confusion eases up a bit, I just don't see that part of the market improving that much," said Sheldon Dong, vice-president of fixed-income strategy at TD Waterhouse Group Inc.
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I've loaded up on t-bills at 4.86% --Leon |
