Distinguishing between a Sell-Off and a Tail Risk Event
In a prior post, I mentioned the growing divergence between HY and CDS spreads. I got really nervous about something big coming when Morgan Stanley indicated that we shouldn’t worry about the effect of DXY on Asian external debt. I calmed down when RBS said a major EM crisis was coming. This speaks to an age-old investing question. No, the question is not “which of these freaking sharks can I possibly trust?” The question is “Is this a tail risk event or just a brief sel
Oil Prices and the Credit Implosion
“All that exists is just and unjust and equally deserving of both.” —Aeschylus Markets occasionally give you something outside of your experience, astonishing and terrible things that make you poorer but wiser. This is intrinsic to high yield credit: Correlation takes its iron grip and drags down the just and the unjust equally. We got an example of this in the last few days. A real dead man walking, First Oil Corp widened 432 basis points yesterday. 432 basis points. Th
Credit Markets: Dissecting the Current Pain
There is a gnawing pain in the back of your mind when thinking about going long corporate bonds. When rates rise, it is a guaranteed money loser. So for the past few years an alternative that returned a healthy premium was found by taking the spread risk on many kinds of credit. It started with IG to IG, but settled into HY to IG as a popular way to express the view, as you could leverage this income in liquid indices. It essentially became a part of the trading DNA, so to
