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July 2007

Not a good week for bulls

The iTraxx Crossover Index broke above 450 basis points on Friday, even though Q2 US growth figures were above consensus and headline corporate earnings figures have been reasonably strong of late. European CCC rated bonds have returned -6% since spreads reached all time lows at the end of May.
We’ve covered many of the key issues previously, but in short, a slowing US housing market has led to…

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Letter from the Fed

Our economist, Steven Andrew and I visited the Washington Fed and New York Fed last week. Here are Steven’s quick and dirty comments on what we learned from them – written on his Blackberry at Newark airport, so he asks you to be gentle on the terse style.

Some quick thoughts from our meetings with the Fed this week:

The Fed in Washington
Largely upbeat (they’re never anything else). Not genuin…

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The Week Ahead

After last week’s doom & gloom (see here) all appears significantly more rosy at the start of this week. The iTraxx Crossover index, currently trading at 285 as I type, is tighter than the 310 highs reached during last week with other areas of the market also bouncing back. Will it last? Well, this week’s plethora of data could give a good indication and potentially set the tone through the sum…

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In defence of CDOs

CDOs (Collateralised Debt Obligations) are being hailed in some quarters as the next split cap catastrophe. As a result of the US sub prime mortgage crisis, some CDOs that are heavily exposed to the US subprime mortgage crisis have fallen dramatically in value and hedge funds that have a big exposure to these CDOs are on the brink of collapse. There are legitimate concerns with some aspects of …

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Russia and realpolitik

At the risk of finding something radioactive in my sushi, the escalating tension between Russia and the UK makes me nervous about the amount of issuance of capital (both equity and bonds) out of the former Soviet republics. Credit risk is not just about ability to repay a debt, but also about willingness to repay and it should take into the account to ability to take legal action to recover mon… Read the article

Doom & Gloom

The last couple of days have seen a big re-pricing of risk in the sub-investment grade world. The iTraxx Crossover index of the most traded high yield companies has widened from a spread of below 200 bps in June, to 300 bps yesterday. This move was triggered by both Moody’s and S&P announcing the downgrades of hundreds of bonds backed by US sub-prime mortgages. The face value of the BBB-ABX ind…

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‘Covenant Lite’ loan deals – a detailed note

A number of clients have asked us about ‘covenant lite’ leveraged loans. Our view is that the financial press has in some cases been misleading investors regarding what cov-lite actually means, and we thought it would be helpful if we put together a detailed note that explores some of the issues surrounding cov-lite leveraged loans for readers who are interested in learning more. Click here to … Read the article

Risky credit starts to wobble

John Waples wrote in the Sunday Times (read article here) on a theme we have been discussing for quite some time – ever increasing activism amongst investors. He points to a number of examples. Cadbury Schweppes, ABN, Rentokil & Vodafone have all come under pressure from equity investors of late “to release value and change corporate structure or management.” The message it seems is getting thr…

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Thank you – we raised £100,000 for the Prostate Cancer Charity

Thank you very much for those of you who sponsored me and the team in last Sunday’s bike race from Greenwich to Canterbury, a ride of 120 miles along the route that the Tour de France took yesterday. I didn’t get near Robbie McEwan’s Tour de France time of 4 hours 39 minutes – I managed a more leisurely 8 hours 37 minutes. But then again Robbie didn’t get 3 punctures or have to ride through a f…

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UK homeowners aren’t crippled, they’re rolling in it

I’m quite bemused by the press reaction to yesterday’s interest rate hike in the UK. Almost every newspaper has chosen to focus on how the average homeowner is going to be crippled now that UK interest rates have gone up from 5.5% to 5.75%. The Daily Mail calls it Homeowner Misery, and has calculated that the average cost of a £125,000 mortgage is up £130 per month compared to this time last ye…

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