Ah the Credit Default Swap... that pesky little creature that allows you to go short on bonds, which was at the epicenter of the 2008 Great Financial Crisis, is once again at the center of attention. I speak to David Meneret, chief investment officer of Mill Hill Capital and veteran structured credit investor, about why he is buying more and more credit default swaps against high yield credit in commercial mortgage-backed securities (CMBS) and airline asset-backed securities (ABS).
In this video, Nick and I go over what credit default swaps are, why they matter, and what they indicate about systemic credit risk within our global financial system.
The full interview airs tomorrow (Friday, July 2nd.) I hope you enjoy!
Charts (courtesy of Mill Hill Capital):
High-yield credit default swap spreads are near their record lows (or "record tights" as industry vets say)
per unit of leverage, investment grade (IG) and high-yield (HY) spreads are at all-time tights...
Net leverage has soared:
and with yields so low, investors are incentivized to reach for yield in lower-rated securities...
A huge thank you to @Farrell Murphy and of course @Nick Correa
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