tag:blogger.com,1999:blog-6321089372587128676.post2138165999051975528..comments2023-10-17T10:01:00.917-04:00Comments on Distressed Debt Investing: Credit Market Quite Possibly InsaneUnknownnoreply@blogger.comBlogger3125tag:blogger.com,1999:blog-6321089372587128676.post-64119296405911427532010-08-05T13:49:48.236-04:002010-08-05T13:49:48.236-04:00I completely agree with you Hunter. Two years of w...I completely agree with you Hunter. Two years of watching the flow-of-funds has me staring wide-eyed at my screen. I've been arguing the case for going long zeros for months too early, but I just can't follow on that anymore. At rates this low, when the positive convexity feeds the self-feedback loop it gets a little scary because the price curve gets so much steeper that a few bps here and there can really ruin your day, as you said.<br /><br />That being said, after looking at some of the recent issues being pumped out by banks, for example a 20y BoA, FDIC-insured floating ((30yCMS - 2YCMS - 87.5bps) * 4) [06051VTG1] and a similar issue from citi [] or another BoA [06048wcs7]((30y-2y-25bps)*4) say one thing: We are going to fleece retail by teasing them with a high initial yield, and then pay nothing for years. The banks expect further flattening as the fed goes out further in the curve, and I have to agree. The current deflationary pressures have a lot of momentum and will take years to clear up.<br /><br />That being said, the flood of liquidity is definitely distorting things even more as cash just sits idle in mmkts, fueling low repo rates and enabling players of the curve to take the carry by borrowing short, which is all well and good buuuuut, if the fed doesn't mantain the size of their balance sheet as refis / payments shrink their ABS assets, I definitely expect the effects to reverberate across the entire market. this is all going to end in tears.Anonymoushttps://www.blogger.com/profile/12854212312458729028noreply@blogger.comtag:blogger.com,1999:blog-6321089372587128676.post-81948903790432179082010-08-04T18:20:35.219-04:002010-08-04T18:20:35.219-04:00100% agreed Hunter. My fund is not getting any al...100% agreed Hunter. My fund is not getting any allocations and I just can't believe where spreads are. It is seriously just mind boggling. I feel like this will not end well. Great post.<br /><br />-shaunsnollAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-6321089372587128676.post-33949581904742296512010-08-04T07:49:22.591-04:002010-08-04T07:49:22.591-04:00Nice post Hunter. Agreed that things are out of c...Nice post Hunter. Agreed that things are out of control. I cant even get engaged on what I think are decent bids. My sales guys all have the same story. "Everyone has too much cash."Anonymousnoreply@blogger.com