Category Archives: bonds and loans

Hank Paulson, Buy-Sider

The details of RTC II are emerging, and it’s pretty simple: give Hank Paulson $700 billion, let him buy up mortgage-related toxic waste, and thereby rescue the banks and save the global financial system. Henry Blodget asks one key question: … Continue reading

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Convertibles: Collateral Damage of the Shorting Ban

It seems a long time ago now, but back at the beginning of the credit crisis, when US banks were being bailed out recapitalized by foreign governments rather than their own, one of their favorite methods of raising new capital … Continue reading

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Craziness at the Short End of the Yield Curve

What’s going on with Libor? Painfully and predictably, overnight dollar Libor has spiked to an eye-popping 6.44%, up from 3.11% yesterday. And sterling Libor rose a lot too: it’s now at 6.79%, up from 5.4%. But look at euro Libor: … Continue reading

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Will Lehman or WaMu Default?

If there is going to be a big financial-sector default, who would it be? Justin Fox answers the question: The one everyone has been talking about is Washington Mutual, which is down another 25% so far this morning (Lehman stock … Continue reading

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What is Frannie’s Default Risk?

The FT today makes a stab at answering some of my Frannie questions, specifically the ones about whether Frannie debt is part of the USA’s national obligations. Peter Orszag thinks it should be, but the White House seems to have … Continue reading

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Bill Gross, Braggart

This kind of crowing is unseemly and counterproductive: "Our mortgage overweight and the performance of mortgages on Monday gave the Total Return fund its greatest one day relative performance (compared to our index) in its history," Bill Gross, chief investment … Continue reading

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Why do Regional Banks Hold Fannie and Freddie Preferreds?

I just saw this, from the FT: Regional banks, together with US insurers, hold the majority of Fannie and Freddie’s $36bn of outstanding preferred stock, which could be wiped out in the event of a government rescue. This is creating … Continue reading

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How Big are Subprime Losses?

According to Bloomberg we truly are all subprime now: Losses and writedowns on securities related to home loans to people with poor credit now exceed $504 billion at financial institutions. This may have started as a subprime crisis, but it’s … Continue reading

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Borrower Behavior: The Big Unknown

Aline van Duyn tells an increasingly familiar story today: that while corporations have a very clear hierarchy of debt payments, with preferred stock, mezzanine debt, senior debt, senior secured debt, and all that, individuals do not — and they don’t … Continue reading

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Good News for Monolines Wanting to Settle their CDO Obligations

Whenever a debt issuer runs into distress, it’s a safe bet that there will be legal tussles between holders of junior and senior notes. CDOs are no exception, as Aline van Duyn reports today in the FT. But it turns … Continue reading

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When Markets Break

How do you know that markets are broken? Sometimes it’s the presence of a clean arbitrage like that in Thomson Reuters shares. But there’s a much bigger weirdness going on right now: as John Carney reports, the spread on long-dated … Continue reading

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Learning Lessons from Auction Rate Securities

Back in February, James Stewart, an investor in auction-rate preferred shares, complained that those shares were illiquid and that he was having difficulty accessing his money. He reckoned that if he couldn’t get his money out of the closed-end fund … Continue reading

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Money-Market Datapoint of the Day

Vikas Bajaj reports: Money market funds, the short-term cash alternatives, grew to $2.9 trillion in June, up from $2.1 trillion a year ago, according to Crane Data. Those funds, in turn, have more than tripled their holdings of Treasuries and … Continue reading

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The Risky World of Argentine Debt

For all that commodity prices might be falling right now, they’re still very high — which is good news for Argentina and its current account. Since its disastrous default and devaluation in 2001, the Land of Silver has managed to … Continue reading

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Distressed Trades of the Day

For the best part of a year now I’ve heard buy-siders talk about how there are great opportunities in the debt markets if you know what you’re doing. I’ve generally assumed that these people have lost money on most of … Continue reading

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The Mystery of Merrill’s Asset Reduction

Alea is as eagle-eyed as ever: The most important and most ignored sentence in Merrill’s press release: The sale will reduce Merrill Lynch’s risk-weighted assets by approximately $29 billion. How is this possible? After all, last month the CDOs being … Continue reading

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Do Covered Bonds Have a Government Guarantee?

Steve Waldman reckons he’s worked out what the problem is with covered bonds: A covered bond offered by Citi or Bank of America would only default if a titan collapsed. Investors might reasonably believe that would not be permitted to … Continue reading

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The Real Cost of the Agency Guarantee

Dan Gross says that if and when the federal government bails out Fannie and Freddie, "the bailout will be a bargain for American taxpayers, because any cost of it will be overwhelmingly offset by the tangible and quantifiable economic benefits … Continue reading

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What is a Covered Bond?

What is it about covered bonds which makes them so impervious to English? Hank Paulson had nice things to say about them today, but if you didn’t know what they were already, the WSJ explanation would hardly shed much light … Continue reading

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How Models Caused the Credit Crisis

Ryan Chittum asks if we want to know what caused the global credit crisis, and suggests that if we do, we should "start here", with a 22-page report about subprime lender IndyMac from the Center for Responsible Lending and former … Continue reading

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Whatever Happened to Curve Steepening?

Remember Julian Robertson’s curve steepener? At the end of January, it seemed very smart. The spread between two-year and ten-year rates had widened out to 150bp, from just 97bp earlier in the month. As a long-term bet it made a … Continue reading

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Illinois-Countrywide: Potentially Devastating

I’m a huge fan of Tanta, but I think she’s either being far too dismissive of Illinois attorney general Lisa Madigan’s lawsuit against Countrywide, or else she’s being faux-naive. This case is a very big deal for Angelo Mozilo, for … Continue reading

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Are We Facing a New Wave of Sovereign Bond Defaults?

Carmen Reinhart and Ken Rogoff have a very peculiar op-ed in the WSJ today, warning of the risk that there will be another wave of emerging-market sovereign bond defaults. Now Rogoff, a former director of the IMF’s research department, is … Continue reading

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The 1-and-15 Hedge Fund

UK fixed-income hedge fund manager Blue Bay is in some trouble: Blue Bay said performance fees had fallen by 75 per cent in the second half of the year, to £4m in five months, compared to £18.2m in the second … Continue reading

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Putting Vulture Funds in Perspective

Daniel Davies has a spirited and intelligent attack on vulture funds, explaining why I’m misguided in my attempts to defend them. He makes some good points, which I’ll come to in a second. And I do feel a little bit … Continue reading

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