Tuesday, November 04, 2008

Corporate Bonds Spreads & Good Economists

Blogger Han Qiang said...

he mentioned 2 important points which i think you might have missed out. The spread between corporate bonds and treasuries remain elevated. CDS indices for investment grade remains high despite falling libor-ois and ted spread.

I verified his statement and realise that bonds spread remain high even for AAA-rated corporate bonds. This is significant because this suggest not only the third tier companies will be defaulting.

my 2 cent worth

10:28 PM

Comments: Fair comment. In a normal rational market, when spreads btw Treasuries and corporate bonds start to widen, its a sign that risk of default is higher and a likelihood of an imminent big correction in the stock markets because investors are pulling money out of corporate bonds, or demanding higher rates to hold them. To see them now, after all the injections of liquidity and after such a huge correction, seems to me its not rational investing. Investors are still demanding higher yields on corporate papers, not so much that they might default (still a risk) but rather to the ability of these companies being able to refinance the bonds when they are due, and also the volatile market situation which makes everyone fly towards Treasuries. The spreads is more a reflection of risk aversion rather than a telling sign on future defaults. The spreads have widened even more on junk bonds, and rightly so as they will be the first to default, and first to find it much harder to get new funding. Hence, your conclusions would be more correct in a normal functioning, pre-correction market... maybe not so much now.

Blogger Kris said...

The most important of all for Dr.Doom is that did he made serious money shorting the market when he predicted the October 2008 fall?

Talking is one thing..doing is another..lol :P

11:34 PM

Comments: That is not a fair comment. We all have a role to play. Some are good analysts, some are good economists, some are good portfolio managers. We cannot and should not judge by how much they make before terming them as good experts or poor ones. Some good economists may be poor traders and poor stock selectors. Roubini did very well in his predictions, let's just say that. No need to see whether he made his money or not. Same for some portfolio managers and traders who made money but are piss poor when it comes to analysis. If money is your be all and end all, so be it. Then we will end up worshiping bank robbers who got away, or unscrupulous corporate executives who bilked companies out of millions and still not prosecuted, are these guys your heroes?
The Standard HK: Tuesday, November 04, 2008

Are you depressed about all the money you've lost during the market downturn?

Well cheer up, because even an expert like Stanford University economics professor and Nobel laureate Kenneth Arrow didn't know enough to pull his money out before the market crash.

Arrow, who in 1972 became the youngest person ever to win the Nobel Prize in economics, was in Hong Kong yesterday to deliver the Sun Hung Kai Properties Nobel Laureates Distinguished Lecture at Chinese University.

Arrow later said he has suffered an investment loss of 30 percent during the financial crisis.

p/s photo: Nia Ramdhani

1 comment:

easystar said...

And also importantly, the volume of the CDS market which I believe is rather illiquid right now and with many players out (AIG etc), the spread is pretty much being voted by whoever who still dares/cares to participate.

Remember Morgan Stanley CDS was at around 250 bps above treasury I think even after the MUFJ deal was annouced and affirmed.