Skip to main content

Bonds
Bonds
10901 members
39 questions
85 posts

Expert discussions on all things bonds and bonds-related including treasury, high yield, investment grade, CLOs, mortgage-backed securities, insolvency, bankruptcy and more. All posts should be productive and evidence-backed. You must press the ASK A QUESTION button if you want experts to provide answers. Everything else can be added as a standard post.

CLO paper I referenced

The CLO paper I referenced on yesterday's Daily Briefing - "Are CLO Collateral and Tranche Ratings Disconnected?" is attached here. Has great charts. Should we try and get one of the authors on Real Vision? 

Boaz Weinstein Interview on Bloomberg

Very informative interview on Bloomberg last week with Boaz Weinstein.
https://www.bloomberg.com/news/videos/2020-10-23/front-row-boaz-weinstein-saba-capital-founder-cio-full-show-video


I tried my best to transcribe it so apologies for errors with words. I was working with the closed captions.
 

4 x STANDARD DEVIATIONS POSITIONING - A TELL?

SPECS ARE POSITIONED 4 SD SHORT BONDS 

 

Investors/Specs are currently positioned 4 standard deviations long rates/short bonds!!! 

This is extreme to say the least and cannot last long. They are fools since they are fighting guess who? - the Fed. There is simply no way the Fed can or will allow rates to back up much more. Neither the gov't nor the economy nor the financial system can handle that and survive.... sooo. They will get their heads handed to them shortly. And here is an interesting question. Since this means they are essentially all on the wrong side of the boat, the move should be quite dramatic once triggered (which it may have been already). What will it mean for stocks? My guess is a nice juicy selloff. What say you?

https://www.youtube.com/watch?v=ve3mdh7t_Y4

 

Michael Epstein
Serial Entrepeneur / Investor / Trader

No one is really talking about SOFR

I used to price Swaps.. Mark them to market and model their possible behavior over time T

using the LIBOR as the reference. I spent many hours building some sophisticated models using OVERNIGHT INDEX SWAPS rates. It took me a few years to understand the LIBOR rates.

Things I've learned.

Shady MTM happens in OTC derivatives markets. Since there is no exchange to be the counterparty, and often insurance is not fairly marked to market.


We used the Heath Jarrow and Morton's method or the LIBOR MARKET MODEL in many of our models..

Obviously, we are now changing to SOFR.

I expect some really shady things to happen in the OTC derivatives market.

  • Bermudians
  • swaptions
  • cds
  • CDO
  • MBS
  • synthetic CDO
  • CLO
  • Interest rate swaps
  • Forward Rate Agreements
  • Caplets and Floorlets on bonds
  • Structured products
  • Market structures changes
  • New counterparty risk considerations?

Why is no one short CMBS by going long CDS?

Is it assumed the central banks will be the new RISK-TRANSFER from the banks and institutions with dirty paper now.

I have said this over and over.. The counterparty has been removed already as it's now the central banks taking on the counterparty risk.

Anyone have anything useful to add to this discussion?

We just will switch to SOFR now as the floating rate?

I would love a bond or fixed income expert to explain to me how to now Mark to market exotics. or bespoke products using SOFR as the float.

  1. https://ocw.mit.edu/courses/mathematics/18-s096-topics-in-mathematics-with-applications-in-finance-fall-2013/lecture-notes/MIT18_S096F13_lecnote24.pdf
  2. https://www.mathworks.com/help/fininst/pricing-a-cds-index-option.html
  3. https://www.risk.net/derivatives/7543416/markit-plans-sofr-credit-spread-add-on-using-cds-data
  4. https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2019/Users_Guide_to_SOFR.pdf
  5. https://apps.newyorkfed.org/markets/autorates/SOFR
  6. https://www.bankofengland.co.uk/working-paper/2018/overnight-index-swap-market-based-measures-of-monetary-policy-expectations
  7. https://www.bankofengland.co.uk/-/media/boe/files/statistics/yield-curves/yield-curve-terminology-and-concepts.pdf?la=en&hash=FB7E974604FAE37155E0E649C70B2F2AF3FDD4CF... (More)