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Category Archives: bonds and loans
The Dangers of Junk
Accrued Interest thinks that high-yield is a good buy at these levels (a yield of about 10%). The "value proposition," he says, "is relatively simple": The greatest credit loss rate of the last 25 years was in 2001 at 8.3%. … Continue reading
Posted in bonds and loans
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Treasuries: Steeper
Julian Robertson’s big macro bet right now, according to Brian O’Keefe, is a curve steepener. Here’s the idea: In the fall, Robertson invested in a derivative called a "curve steepener" that allows him to be long the price of two-year … Continue reading
Posted in bonds and loans
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Inflation Expectations: Coming Down
Back at the beginning of the year, I recommended putting in a non-competitive bid for 10-year TIPS at the January auction on January 10. Now that’s happened, I can link to the results: my hypothetical bid would have picked up … Continue reading
Posted in bonds and loans, economics, fiscal and monetary policy
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How a Bullish Trade on Subprime CDOs Made Good Profits
From Merrill Lynch to Morgan Stanley, everybody who lost boatloads of money on subprime-backed CDOs seemed to be following the same big-picture strategy: they went short the riskiest, most junior tranches of the CDOs, and hedged their bets by buying … Continue reading
Posted in bonds and loans, hedge funds
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The Crisis Meme
The Russian crisis was a crisis, as was LTCM: both had very nasty global systemic implications. What we saw in 2007 was not a crisis.
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Posted in bonds and loans, economics
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Will Buyout-Related Deals Flood the CMBS Market?
The CMBS market, where mortgages based on commercial paper office and retail space are traded – has been extremely quiet of late. Good prices are hard to find, but what’s clear is that the primary market has all but disappeared, … Continue reading
Posted in bonds and loans, housing
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Two Trades for 2008
I don’t make predictions. But, what the hell, let’s see how these two trades turn out over the next year. The first is highly speculative, and individual investors aren’t even allowed to do it; the second is highly defensive, and … Continue reading
Posted in bonds and loans, derivatives, stocks
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Good and Bad Reasons to Worry About the Credit Crisis of 2008
Floyd Norris’s column today reads as though it was written by two different people. Most if it is very good – a clear explanation of where the next credit crisis might come from. But then, at the end, it falls … Continue reading
Posted in bonds and loans
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Warren Buffett, Bond Insurer
I’m fascinated by the news that Warren Buffett is starting up a new bond insurer. On the one hand, it makes perfect sense: he’s an expert in insurance, he already has a triple-A credit rating, and his competitors in the … Continue reading
Posted in bonds and loans, insurance
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Explaining CDOs, Overcollateralization Edition
I got an email from my friend Todd yesterday, saying that despite my best efforts, he still doesn’t understand CDOs. This puzzled me: Todd’s a very clever chap, and he even works at an investment bank. CDOs are easy to … Continue reading
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The Genesis of a CDO
Portfolio’s flash-based explanation of what a CDO is has proved extremely popular, I’m happy to say. Now the WSJ has got in on the act as well, with a much more detailed (and much less metaphorical) flash-based explanation of how … Continue reading
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Riccardo Rebonato on the Credit Crunch
I have a piece elsewhere on portfolio.com today looking back at this summer’s credit crunch. In it, I quote Riccardo Rebonato, the author of my favorite finance book of the year, Plight of the Fortune Tellers. The quote comes from … Continue reading
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Munis Back Away From Ratings-Agency Domination
In the world of credit ratings, it’s generally acknowledged that the most overrated securities are structured products, while the most underrated securities are municipal bonds. (You have no idea how nice it is to be able to use the words … Continue reading
Posted in bonds and loans
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Silly Idea of the Day: A Micro-Finance CDO
Is there something very weird about this? Citigroup has announced a new $165M CDO backed by 30 micro-finance loans to entrepreneurs in 13 countries including Bosnia, Tajikistan, Mexico and El Salvador. What does the “micro” mean in “micro-finance”? Less than … Continue reading
Posted in bonds and loans, development
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Dr Seuss on CDOs
A PDF file entitled “Dr Seuss on CDOs” has been doing the email rounds today. The text can be found over at the WSJ’s economics blog, but it’s worth reading the piece in its the original PDF form, if you … Continue reading
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Standard & Poor’s: The Other Victim of the MBIA Announcement
David Gaffen has a good round-up of reactions to MBIA’s announcement that it is carrying $8.1 billion of nuclear waste CDO-squared on its balance sheet. The main puzzle seems to be this: S&P knew all about this when it affirmed … Continue reading
Posted in bonds and loans
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Was Ralph Cioffi Singlehandedly Responsible for Everything Which Went Wrong of Late?
Ralph Cioffi must be feeling pretty beleaguered at the moment. A few months ago, he was just a hedge-fund manager whose bets went horribly wrong. Recently, he learned that he’s being investigated to see whether he committed outright fraud. And … Continue reading
Posted in banking, bonds and loans, hedge funds, law
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Will the ECB Start Buying CDOs?
We know that the Fed has pretty low standards when it comes to the collateral it will accept. But that doesn’t really matter, since the Fed is mainly relying on getting its money back from the banks it’s lending money … Continue reading
Posted in banking, bonds and loans, fiscal and monetary policy
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Citi: Still Partially Insulated from SIV Losses
Alea has the scoop on Citi’s SIVs: they’ll have to decline in value by $2.5 billion, or more than 5%, before Citi takes a penny in losses. No wonder Citi found it relatively easy to sell tens of billions of … Continue reading
Posted in banking, bonds and loans
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How Citi is Solving its SIV Problems
Citigroup was always understood to be the prime beneficiary of the SuperSIV plan. But yesterday, Eric Dash dropped hints that Citi had been working on a Plan B, saying that "Citigroup, the financial giant that first proposed the initiative, is … Continue reading
Posted in banking, bonds and loans
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The Myth That Lending Rates Rise in Response to Policies
There’s a credit crisis going on right now. Credit is what you get when a lender lends money to a borrower. Therefore, any attempt to address any credit crisis is, by definition, going to affect lenders. For pundits of a … Continue reading
Posted in bonds and loans, economics, housing
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World Bank Pays Off Nicaraguan Debt at 4.5 Cents on the Dollar
Here’s something which hasn’t got a lot of traction in the press: the World Bank has just spent $61 million on paying off a bunch of old Nicaraguan debt dating back to the late 1970s and early 1980s. The amount … Continue reading
Posted in bonds and loans, emerging markets, world bank
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The Mortgage-Freeze Plan: Still Very Little Litigation Risk
Yves Smith today plays gotcha with the American Securitization Forum, the private-sector group which was instrumental in putting together the mortgage-freeze plan officially announced yesterday. It turns out that the plan is at odds with earlier ASF guidance on loan … Continue reading
Posted in bonds and loans, housing, law
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Financial Innovation of the Day: E*Trade’s Springing Lien Notes
Peter Eavis has dug up E*Trade’s 8K relating to the Citadel investment, and has discovered something rather weird. Citadel’s E*Trade bonds mature in 2017. And it seems that they are pari passu with all the rest of E*Trade’s debt until … Continue reading
Posted in bonds and loans, stocks
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Subprime Datapoint of the Day, Auto Loan Edition
And you thought subprime mortgages had high default rates. William Adams, Liran Einav, and Jonathan Levin examine subprime auto loans: The average purchaser finances around 90 percent of the price of the automobile, with the average loan size being around … Continue reading
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