Credit

What does credit default pricing tell us about the cycle?

By |2018-11-23T12:55:49+00:00November 23rd, 2018|Cerno Capital, Cerno Capital Posts, Credit, General Investment|

Credit risk is the risk that companies do not repay their debts. This risk can be measured and traded. CDX IG is an index comprising the 125 most liquid single name Credit Default Swaps (CDS) in the investment grade space in the US. The most commonly traded tenor point is 5 years and the index is refreshed by the provider every 6 months to maintain maturity and liquidity profile of the underlying names. We are currently on series 31 (meaning the index has been running in one form or another since 2002-2003). The index is quoted in terms of basis points and a quote represents the annual cost of insuring a notional amount of the underlying assets (as a simple approximation). For example; with CDX IG NA currently trading at 78bps (0.78%) an investor paying to insure US$10mn for 5 years would pay US$78,000 annually. In return for this insurance premium they would be made whole (minus the recovery rate) in the event of any defaults during the period, proportionate to the size of the constituent. On the flip side, the seller of such a contract would receive US$78,000 annually whilst being on the hook for the above obligations. These [...]

Life after Bill

By |2014-10-01T15:32:06+00:00October 1st, 2014|Asset Classes, Cerno Capital Posts, Credit, General Investment, Government Bonds, Other Posts|

Friday, September 26th 2014 will be etched into the memory of followers of investment management companies and fixed income investors alike. Shortly after lunchtime, when London based manager researchers and consultants were probably settling down to an afternoon of email inbox and desk tidying, Janus Capital announced the recruitment of William “Bill” H Gross. Indeed, many will have missed this given the high likelihood of an email from Janus being ignored or deleted (Janus has struggled to reinvent itself after riding the tech bubble up and down and then becoming embroiled in the 2003 market timing scandal). Within minutes the newswires were alive with the news that PIMCO – Bill Gross’ home for the last 43 years - eventually confirmed in a statement which confirmed the general observation that relationships within PIMCOs Investment Committee and with the business heads had become increasingly challenging. This is the “big one” which will have transition managers salivating. Investment manager moves are not uncommon; sometimes they run a few hundred million dollars, maybe a few billion. Occasionally, a manager is responsible for a few tens of billions of dollars. The size of the AUM under a managers’ control will typically determine the workload for [...]