The ECB made an unprecedented offer of unlimited funds to member banks as the demand for cash soared as a result of Paribas freezing redemptions of three funds. Mind you, these funds only had $2.2 billion of assets, far less than the troubled Bear hedge funds. The reaction seems disproportionate, unless you factor in that […]
Read more...The news item of the morning (aside from the markets suffering a loss of confidence) is that BNP Paribas has blocked withdrawals from three funds that had an aggregate of $2.2 billion in assets, which had fallen by 20% in a mere two weeks. Note that this action is not the direct result of subprime […]
Read more...An article in Wednesday’s Financial Times, Unbound, by Gillian Tett, discusses how trading in credit derivatives generally and in the iTraxx contract in particular has become more important than the bond markets. Because my brain is a bit fried due to jet lag, I will be brief and hopefully won’t oversimplify, although I will probably […]
Read more...Two major types of hedge fund strategies, namely event-driven (Newspeak for risk arbitrage) and statistical arbitrage (typically, very high volume trading to capture and correct anomalies in prices relationships in various markets, such as among stocks bonds, or derivatives, or across markets) are having trouble. It isn’t yet clear how far reaching these problems are. […]
Read more...If credit default swaps prices are a valid indicator, the fixed income markets are regrouping. Prices, which spiked up earlier this week on panic buying of risk protection, have eased off. However, while this decline is a good sign, note that it does not equate (yet) to an improvement of liquidity in the riskier sectors […]
Read more...Many observers had expected quite a few hedge funds that had subprime exposures to report significant losses for June, and there have been rumors of funds that had begun the liquidation process because it was apparent they were too badly damaged to survive. But the specter of investors clamoring to pull funds out of a […]
Read more...European and Asian equity markets performed well overnight, and according to the futures market, US stocks are set to have a good day as well. Yet the credit markets are in a state of near-panic. Some illustrative factoids and comments from the Financial Times: “It is nothing short of ugly in credit land,” said Alan […]
Read more...A draft of a paper, “Innovations in Credit Risk Transfer: Implications for Financial Stability,” by Stanford’s Darrell Duffie, investigates ” the design, prevalence, and effectiveness of credit risk transfer,” with an eye to implications for the financial system. The paper is worth reading for those seriously interested in the CDO/CLO markets, and sets forth a […]
Read more...Investment News Daily said that a major hedge fund index had to revise its performance results downward due to the losses reported at the failed Bear Stearns hedge funds. Normally, this sort of event wouldn’t be noteworthy. A number of different indices measure hedge fund performance, and they report it by strategy (e.g., global macro, […]
Read more...Yesterday, we commented critically on a remark by JP Morgan CEO Jamie Dimon in an interview on LBO lending published by Bloomberg, and a reader was kind enough to point us to another Dimon interview, this time in Der Spiegel. “Keeping the Hedge Funds in Check.” It’s a refreshing read, if for no other reason […]
Read more...Does anyone on Wall Street have any sense? If you are designing transactions that are solely or primarily about tax avoidance, you don’t leave a mile-wide paper trail, particularly documents with titles like “Tax Efficiency” for the IRS to find. From “IRS Probes Tax Goal of Derivatives” in the Wall Street Journal: Federal tax authorities […]
Read more...News reports on a Fitch study on credit default swaps came out yesterday, and I saw it reported in the Financial Times and decided to pass, but other elements of the report have been picked up elsewhere, and I changed my mind. Basically (surprise!) leverage cuts both ways. The FT cited the results of a […]
Read more...Today was the day that Bear Stearns was to issue its delayed report on the net asset value of its two failed hedge funds. As we had indicated, investors who had tried selling their interests for 11% of their April value did getting any takers. There had been bids of 5% on the more leveraged […]
Read more...There was cheery talk of the rally in Treasuries Monday, but that was in large part due to a continued flight from risk. One symptom was that the riskiest ABX index, ABX.HE 7-01, which is a proxy for recent vintage BBB- subprimes, took a nosedive and then recovered, Traders used swords like “panic” rather than […]
Read more...John Authers of the Financial Times thinks the markets got a lucky break this week, and deferred a so-called Minsky moment, which he discussed in a noteworthy piece earlier. By way of background, economist Hyman Minsky observed that creditors become more lax about lending standards during times of stability. He divided borrowers into three types: […]
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