Well nobody is buying CLO's and Corporate Bonds anymore, everybody wants swaps, swaps are now the most popular product on the street... I heard from somebody who heard from somebody that JPM, BaC and Morgan Stanley are taking on some heavy losses in the bond department https://corpgov.law.harvard.edu/201...d-traditional-contingent-and-empty-creditors/
The final example (Windstream Services—2017-2019) stems from the September 2017 decision by Aurelius Capital Master, Ltd., a large holder of notes issued by Windstream Services (Windstream), a telecommunications company, to send a notice of default with respect to a covenant breach that allegedly occurred two years earlier. No one else had complained of this possible issue. And if a court agrees a covenant breach occurred, the decision could trigger cross-defaults on about $5.7 billion in debt, and Windstream may be forced into bankruptcy. Why did Aurelius do so? Aurelius is likely not a traditional creditor. Relying on information from industry sources, Windstream proferred the testimony of a banker that Aurelius would profit “more from its CDS position if [Windstream] defaults than if [Windstream] successfully pays off the bond at maturity, creating an incentive for Aurelius to destroy the value to other noteholders.” If true, this would be an example of the weaponization of a technical default. At time of writing, the litigation on this and related issues was pending. Informational asymmetries can now materially hinder investor decision-making and market efficiency in the context of troubled companies. The true, faux, and technical defaults arising from third party CDS and debt decoupling activities pose especially complex informational and substantive challenges that must be addressed. 2020 will be a very very interesting year!
exactly. all the Fed expansion of its balance sheet is like tinder(no, not the meeting site) as in a dry flammable material. as long as there is not a spark of fire it is all good. if there is a spark the whole forest burns down. the same is true of the $US. if there is some bond event or someone refuses to accept the dollar because they are suspicious of its general acceptance, the fear spreads like a forest fire. overnight or in a short period the currency collapses and is near worthless. the $US is exempt from such an occurrence in the short run but over time it can collapse.
Current recession is exactly identical to last crisis, only difference is collapse will start with downgrades in IG Bonds this time, last recession was in RMBS... I think after the last rounds of QE they figured out you can run the bill until collapse, get very rich while doing that, and in the end it won't matter short term cause Fed comes to the rescue... Whole video is very good, but moody's complicity starts right away
https://www.mpamag.com/news/non-pri...underwrite-10bn-in-nonprime-loans-113820.aspx https://www.naca.com/ https://www.isda.org/2019/01/15/swapsinfo-full-year-2018-and-fourth-quarter-of-2018-review-summary/ Credit derivatives traded notional increased by 39.2% to $9.5 trillion from $6.8 trillion in the full year 2017. Trade count grew by 30.3% over the same period. There was more trading activity across all major indices, including CDX HY, CDX IG and iTraxx Europe. CDX HY traded notional increased by 51%, while CDX IG traded notional rose by 52.2% in the full year 2018 compared with the full year 2017. iTraxx Europe traded notional increased by 27.9% over the same period. Cleared transactions represented 82.8% of total traded notional, compared with 79.8% in the full year 2017. About 98% of CDX HY, 98% of CDX IG, 97% of iTraxx Europe and 49% of other credit derivatives traded notional was cleared.
Not really. It was a two-leg trade that actually was intended to be a hedge for the firm in case of a credit crisis (which makes it hilarious, of course).
Although to be fair it was the reliance on the rating agency assessment of the AAA leg that screwed him wasn't it?