Lehman, Bank of America, Barclays Say Rout Is Over

Discussion in 'Wall St. News' started by S2007S, Jul 13, 2007.

  1. S2007S


    July 13 (Bloomberg) -- Lehman Brothers Holdings Inc., the biggest underwriter of mortgage bonds, Bank of America Corp. and Barclays Capital say the worst of the global credit market rout is over for now and investors should buy investment-grade debt.

    ``Much of the pain has been squeezed out,'' Lehman's London- based credit strategist David Brickman said in an interview. ``There may be some aftershocks but investors are showing a willingness to take exposure to investment-grade credit.''

    Banks and hedge funds triggered the biggest daily increase in risk premiums for European investment-grade debt in at least three years this week by buying credit-default swaps to offset potential losses. The ``worst of the hedging process is behind us,'' Brickman said in a report earlier today.

    Bank of America, the second-largest U.S. bank, recommends clients increase corporate credit risk in Europe and the U.S. Paris-based Societe Generale SA, France's second-biggest bank, also advises boosting investment-grade debt because the sell-off went ``too far.''

    ``This isn't a market meltdown for credit,'' Robert McAdie, global head of credit strategy at Barclays in London, said in an interview. ``Investment-grade fundamentals remain strong, so at the moment it's a safe haven.''

    Leveraged Buyouts

    Barclays recommends boosting investment-grade debt in Europe and the U.S., with the exception of home builders and companies prone to leveraged buyout speculation. Debt rated BBB-or higher by Standard & Poor's and Baa3 by Moody's Investors Service is considered investment grade.

    Companies have ``strong'' cash reserves and the default rate is near the lowest on record, New York-based Lehman said in its report. Any deterioration in credit quality is likely to be ``gradual.''

    Lehman recommends investors bet on credit quality improving by selling credit-default swaps. Five-year contracts based on 10 million euros ($13.8 million) of debt included in the benchmark iTraxx Europe Series 7 index of 125 investment-grade companies traded at 29,000 euros in London today after reaching a high of 35,000 euros July 11. Lehman is targeting a drop in the index to 26,000 euros.

    Credit-default swaps on $10 million of debt in the CDX North America Investment Grade Index of 125 companies fell $2,500 to $43,000 at 4:41 p.m. in New York, according to broker Phoenix Partners Group.

    `Long-Term Bearish'

    While Bank of America recommends increasing corporate credit in the short term, the Charlotte, North Carolina-based bank is ``longer-term bearish,'' Jeff Rosenberg, a New York-based analyst at the bank, said in a July 11 report.

    BNP Paribas SA, France's largest bank, based in Paris, and Frankfurt-based Dresdner Kleinwort AG said in reports today that the turmoil in the U.S. subprime market will worsen, and that the impact will spread to other parts of the economy.

    Investors use credit-default swaps to speculate on the ability of companies to repay debt. Prices for the contracts rise as the perception of credit quality deteriorates, and fall as creditworthiness improves.

    Banks and hedge funds say it's cheaper and easier to use credit-default swaps than buying or selling the underlying securities. Investors sell the contracts based on the index as proxy for buying the underlying debt.
  2. nkhoi

    nkhoi Moderator

    wait, I miss the squeezed out, when did that happen? was it when I waited in line for for my hamburger?
  3. wow, I guess you've never heard anyone try and talk their pad/book? keep on cutting and pasting though. poser
  4. S2007S


    calm down there frank....

    whats wrong with posting an interesting article that many will not come across if I dont take the time to post it.....

    more to follow.......
  5. how about posting WHAT YOU THINK OR HOW YOU TRADE. we all have a news feed.
  6. seriously dude, almost 4k posts, and all you do is say the mkt may go up down or sideways? yes I know you are calling for dow 14k ....at 1st you said may, then june, then this year, now you're back to now...eqt tdr and you have no business on a traders board. get bent...
  7. All these denials remind me of those old Cops episodes. They catch the guy red handed (whatever the hell that means) and he tells lies that would embarass a second grader.

    The CDO crisis is a crisis. It may not manifest itself in the tape immediately, but to ignore it, or to believe Wall St. excuses, is fool hardy (whatever the hell that means.). Where do these sayings come from?

    Anyway, Katie, bar the door.
  8. I have unloaded 50% of my short term bond funds in my retirement acct that were largely made up of this stuff. No thanks. Rather would be in cash or buy some treasury zeroes in a few months.

    Methinks I know now what will solve the interest rate "conundrum" - and the fed won't have to raise rates a dime!

    Watch that curve steepen....anyone else here have any doubts that we see 5.50% in the 10year by December?

    Although about 12-24 months from now someone is going to make a killing buying up what's left and performing of these ABS. Ain't gonna be me, since I am but a babe in the woods with these, but I wish those people well.
  9. Tis a wise man indeed that noeth thy limitations. Besides, you 'd have to be a pro. Who could you trust but yourself????

    I got a call today from a realtor in Pinehurst I hadn't heard from in six months. What's that tell you? She says sellers are negotiable. You think??? I'll bet holding paper comes back in fashion ala 1980.
  10. Interesting point we have arrived at. A few fulcrums I watch in this balancing act are C, BAC, GS, BSC and LEH.

    The stakes:$40 + TRILLION in financial derivatives that could implode.
    We live in a world where South America, the Middle East, and
    certainly China and India are questionable counter derivative parties who could easily lie down on the trades once they start to hurt their local economies. It’s not hard to theorize another Great Depression if a domino effect gets going.

    But for the time being the powers that be seek more fresh cash, so up we go.
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    #10     Jul 15, 2007