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Banks oiling the wheels with liquidity

An overriding theme for U.S. high yield energy companies in the current oil price environment is having sufficient financial liquidity (cash, bank credit, etc.) to cover their obligations as earnings come under pressure due to low oil prices. Maintaining liquidity until oil prices recover will be paramount for energy companies to survive, even for those names that aren’t especially levered. It …

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Refreshing the credit markets: Heineken finally receives a credit rating

We rarely go into individual corporate rating actions on the blog, but bear with me. Today Heineken was rated Baa1, BBB+ by Moody’s Investor Service and Standard & Poor’s respectively.  Not exciting, and a non-contentious rating. So why is it of interest ?

Well, for the previous 25 years of my career this large corporate has not had a credit rating, and has decided at last to join the vast majo…

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The outlook for fixed income after the summer of discontent

What a summer we have had in bond markets! The US and French bank downgrade, limited policy flexibility, aftermath of the Japan earthquake, rising commodity prices and sovereign and banking concerns already had markets on edge. A further deterioration in leading economic indicators has proved to be the straw that broke the camel’s back, leading to a sustained bout of risk aversion causing volat…

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What is risk off?

Recent selling of risk assets into traditional haven government bonds has taken their yields back near their all time lows. Will people continue to buy them in a risk off trade? We are almost certainly nearer the beginning than the end of a western world sovereign debt crisis. That means quite clearly that Gilts, Bunds and Treasuries are not the ‘risk free’ investments they once were. In relati…

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The quest for the safe haven; one haven that’s justified, one that’s certainly not

A lot of the cash that’s been created over the past few years is sloshing around the world trying to find somewhere to hide. There has been a huge bid for anything deemed a safe haven asset, a bid that has been propelled by an imploding Eurozone and US politicians that are seemingly looking to bring its $14 trillion poker game to a spectacular finale by committing collective hara-kiri.

The prob…

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Who owns sovereign credit default swaps and why it matters

Guest contributor – Tamara Burnell (Head of Financial Institutions/Sovereign Research, M&G Credit Analysis team)

The Bank for International Settlements (BIS) recently released some fascinating data on the country risk exposure of global banks. For the first time we got some insight into not only which banks own Greek and other peripheral European sovereign, bank and corporate debt, but also who…

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Haircut 100 – how is the burden shared when a banking system goes bust?

When investing in credit, you perform a cost benefit analysis by weighing the risks you are taking against the spread you receive over risk free securities. This excess yield spread is easily observable, and from it you can work out the implied probability of default. It is not the end of the story when a bond defaults though. The important factor that will determine the eventual loss that you …

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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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What’s driving the US Dollar?

The behaviour of the US Dollar over the past few days has left investors a bit stumped, and the FT have been asking the same question in today’s Short View column.   Friday of last week saw the biggest rally in the US Dollar since January as an unexpected drop in the unemployment rate led to speculation that the Federal Reserve will lift interest rates by the middle of next year.  Yesterday the…

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Value at Risk – a new way to compare risks across funds

Value at Risk, or “VaR”, is a relatively new risk measure for the asset management industry, but is one that is rapidly becoming a benchmark for risk. The Investment Management Association (IMA) has already ruled that “sophisticated funds” (funds using sophisticated derivative strategies) must use VaR techniques, and it is likely that VaR will become a leading risk measurement in the asset mana…

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