Monthly Archives:

February 2010

Are Sovereign CDS Evil?

Following on from Jim’s Sovereign CDS Q&A blog (see here) I came across this chart at zerohedge.com.  Whilst I can’t vouch for its accuracy, the chart shows that the actual net amount of outstanding sovereign CDS contracts, relative to outstanding government debts, are actually very small. That would seem to add weight to Jim’s argument that the  pressures faced by governments are borne ‘of fis…

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What is the risk free rate anyway?

The risk free rate is a concept beloved of micro-economists and bond math geeks.  It’s the building block of Modern Portfolio Theory and an input into option pricing models.  It’s supposed to represent the interest rate available in the market that is without credit risk and as such is the lowest interest rate in the market.  The complete absence of risk has always been more observable in theor…

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Sovereign CDS Q&A

The market in sovereign credit default swaps has sprung to life over the past year as worries about the health of nations, rather than corporates, have multiplied.  Problems in Dubai in December, and Greece right now, on top of a general deterioration of the developed economies’ budgetary positions have seen sovereign CDS making headlines.  Here’s a chart of some of the latest CDS spreads on th…

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LBO’s and IPO’s: have European equity investors woken up?

Back in January at our Annual Investment Forum I focussed on the changing face of the European Leveraged Finance markets – those companies financed with significant levels of debt. My belief is that the current, somewhat forced reinvention, will ultimately result  in an increasingly deep and liquid European High Yield market (EHY), more akin to that of the USHY market.

This change, which is alr…

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Breakfast with Nobel laureate Joseph Stiglitz, plus competition time

On Tuesday morning,  I attended a breakfast with Joseph Stiglitz that was both fascinating and gloomy.  Stiglitz, who was formerly the senior adviser to Bill Clinton, Chief Economist at the World Bank, and was awarded the Nobel prize for Economics in 2001,  shared his views on the state of the US and global economy and discussed some of the key themes in his new book Freefall.  Stiglitz’s views…

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What happened the last time the UK defaulted?

Britain has run debt to income ratios way in excess of current levels at several points in its history.  Around the times of the Napoleonic War, and both the First and Second World Wars the debt to income level exceeded 200% – levels that today would be regarded as crippling and would lead the markets to expect imminent default. Click chart to the left. Yet there has never been a formal default…

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