The energy sector may account for a good proportion of risky credit, but that doesn’t necessarily mean that all negative price action in high yield and junk is entirely energy. While certain markets have regained comfort with the world’s various potentials, the outer echelons of US credit remain on alert. That is typically the pattern of an impending inflection in [...]
It seems Charles Dickens had a flair for 21st century economics all the way back in the 19th century. Writing in his book Little Dorrit (thanks to W Krauss for the reminder) he observed that credit systems tended to be, “…a person who can’t pay, gets another person who can’t pay, to guarantee that he can pay.” The first person [...]
While this morning’s post was more about longer-term implications of “dollar” changes, there are a couple of observations pertinent to the shorter-term that I think need consideration too. For whatever reason, whether it was, like September 4, 2013, an anticipation of countertrend “dovishness” on the part of the FOMC, the eurodollar market gained a sudden appreciation of the economic downside [...]
While the mainstream focus continues to be on stocks, which will probably always be the case, there are perhaps more important factors to consider in other “risky” places. The burst of buying in UST’s yesterday was not done in a vacuum and I don’t believe it was related to the simplistic idea of stock investor “rotation.” In fact, when you [...]
In looking at the “portfolio effect” of monetary policy, monetarists always see benefits without costs. The one exception in recent years has been Jeremy Stein of the FOMC, who is no longer a member. It was his statement in February 2013 about “reach for yield” that seems to have set off something odd in the policy apparatus. Some of that [...]
Perhaps the most animating aspect of bubble complaints is how much the highest risk pieces are exhibiting the lowest risk tendencies. Nowhere is that more evident than leveraged lending, the bank-led syndication of what would otherwise be termed junk. In this repressed environment, anything offering the slightest elevation in return is prized by those starved for it – which is [...]
Now that we have a very good idea that small companies are having trouble with their bottom lines, that leads to the debt question. The major procyclicality associated with high yield bubble behavior is that it extends the “useful” life of smaller businesses beyond where they otherwise would have potentially scaled back or gone into bankruptcy. In macro terms, that [...]
In February 2013, more than a year ago, Jeremy Stein, Federal Reserve Board Member, openly expressed concern over behavior in certain sectors of the financial markets. He categorized this as “reaching for yield”, but there was more than a whiff of caution in his exposition of leveraged loans and junk debt. “The annualized rates of PIK bond issuance and of [...]
There has been a lot of discussion about the Chinese credit markets, and rightfully so, as unusual events are in the midst of probing “market” sensibilities as they relate to great imbalances. Along that line, this passage in a CNBC article caught my attention: Strict government controls, and the fact that state-owned companies own the bulk of government debt prevent [...]
Chairman Bernanke handed off to Chairman Yellen a tapering asset purchase rate, and thus more than a theoretical problem. It is theoretical to the FOMC, but very much real out here where the world actually operates. The QE program instituted in September 2012 with MBS additions to the SOMA balance sheet has created a number of distortions in various pockets [...]
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