U.K. Crisis Spills Into U.S. Junk Debt

[godsendwoman06]

@resjudicata Even a simple example shouldn't assume you get free money on loan to "double your return".

I could be missing something.

 

[ingmar54]

@godsendwoman06 The margin is 10:1.

 

[resjudicata]

@ingmar54 yeah the collateral is a step above cash

 

[alicec]

@scumyetservant

Do we really have to buy all these exotic derivatives just for some yield?

Basically - yes.

It's just more of the secular decline that's characteristic of the last 20+ years - risks associated with investing in real economic activity are so high and returns so low that those who own quality collateral won't invest there. At all.

So they're stuck playing with low-risk instruments in a low-rate environment. Whether you're a pension fund who has to grow assets to keep up with expected future drawdowns, or a hedge fund manager who has to grow assets to keep investors from pulling out liquidity, your only real options for yield are to find ways to add risk to your portfolio that carries adequate return.

The only place left is in the "derivatives - on - ledger assets" game. All of which is basically some form of leverage.

 

[ebedyahu]

@alicec interest rate swaptions

 

[jaimelavoie]

@scumyetservant They’re probably hedging positions.

 

[monsoon]

@scumyetservant when bonds were paying 1.3%, you needed some hefty leverage to make it worthwhile.

Now that bonds are skyrocketing in yield and plunging in coupon, that leverage is cutting back hard.

 

[kalowishez]

@scumyetservant The real answer is to give the lender and the fund manager money.

 

[resjudicata]

@scumyetservant They provide the initial financing via some vehicle then raise money through capital investors and sell it off.

 

[amcleaning]

@kate930

Investcorp Credit Management

This cannot be a real company, sounds so made up lol

 

[williamhanery]

@amcleaning I think that's where Vincent Adultman works on his business cases

 

[john587]

@williamhanery They’re famous for their business factory where they produce a lot of business

 

[kapws]

@john587 Much employees very revenue

 

[lili28]

@kate930 I still just love how a Thatcher-ite crusader took office in the UK, with big plans for tax cuts and deregulation, and about a week later she's overseeing a massive taxpayer bail-out of the investment industry