Dec 01, 2013

This Market Upsets Me

This market upsets me.

I'm a distressed debt and HY analyst, one problem, there is no HY (by HY I mean >8%) and no distressed in the public markets. This market is mental, 7% PIKs are being priced willy-nilly, credits which were getting their houses in order to restructure have now refinanced at

Why are people so stupid, why can’t people just stop chasing yield for one second? There are so many HY tourists at the moment, even real money guys looking are looking at the one or two things trading in the 20s. Gggrrrrr, get the hell out of my back yard! Flippers are having a field day too, and my biggest gripe: anyone’s long thesis will probably be proved right.

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21 Comments

HF

10y

.

"After you work on Wall Street it’s a choice, would you rather work at McDonalds or on the sell-side? I would choose McDonalds over the sell-side.” - David Tepper

HF

10y

As the neighborhood carry munky and HY tourist, I strongly object to the implied characterization of myself and my fellow munkies as muppets!

Authored by: Certified Hedge Fund Professional - Portfolio ManagerCertified Hedge Fund Pro

HF

10y

Martinghoul:

As the neighborhood carry munky and HY tourist, I strongly object to the implied characterization of myself and my fellow munkies as muppets!

Haha, sorry.

Quick question: When yields normalise, do you expect you'll stick around HY? Or go back home with a lovely tan (insert generic OM Risk section here) and some left over foreign money in your pocket?

"After you work on Wall Street it’s a choice, would you rather work at McDonalds or on the sell-side? I would choose McDonalds over the sell-side.” - David Tepper

HF

10y

Best Response

Oreos:

Martinghoul:

As the neighborhood carry munky and HY tourist, I strongly object to the implied characterization of myself and my fellow munkies as muppets!

Haha, sorry.

Quick question: When yields normalise, do you expect you'll stick around HY? Or go back home with a lovely tan (insert generic OM Risk section here) and some left over foreign money in your pocket?

I AM just kidding... I AM actually in agreement with you and I am constantly on the lookout for trades that allow me to fade this monumental compression of risk premia everywhere. Unfortunately, it hard to find ones where carry doesn't kill you.

Authored by: Certified Hedge Fund Professional - Portfolio ManagerCertified Hedge Fund Pro

?

10y

Are there any ways for a retail investor to gain short exposure to HY credit?

HF

10y

I don't think so, except for HY etfs.

Authored by: Certified Hedge Fund Professional - 3rd+ Year AnalystCertified Hedge Fund Pro

HF

10y

Ha yeah, the problem with fighting carry is that you're fighting carry.

Jack: They’re all former investment bankers who were laid off from that economic crisis that Nancy Pelosi caused. They have zero real world skills, but God they work hard. -30 Rock

AC

10y

ladies and gentlemen, the analytical mind of a trader.

(just kidding)

?

10y

turnyasystemup:

ladies and gentlemen, the analytical mind of a trader.

(just kidding)

?

?

10y

O

10y

@oreos, coming to the london meetup on wednesday?

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Teddy Roosevelt

?

10y

What impact do the HY etfs have?

Please don't quote Patrick Bateman.

CF

10y

Hoping for some clarification:

How are there HY tourists if there are no HY bonds? How do I find PIKs on a regular Scottrade account??? Never even heard of these before this thread (thanks,) and feel like those companies would be some good shorts to look at (would I be wrong?)

When you say long thesis, do you mean people that are confident in bond prices staying at these levels as opposed to tanking as soon as rates go up? EDIT: just realized you might be thinking much more short-term?

Thanks.

HF

10y

nyboarder:

Hoping for some clarification:

How are there HY tourists if there are no HY bonds? How do I find PIKs on a regular Scottrade account??? Never even heard of these before this thread (thanks,) and feel like those companies would be some good shorts to look at (would I be wrong?)

When you say long thesis, do you mean people that are confident in bond prices staying at these levels as opposed to tanking as soon as rates go up? EDIT: just realized you might be thinking much more short-term?

Thanks.

You misunderstand. There are HY bonds in the traditional form, structure (lighter than is prudent, though), companies, credit metrics but they do not yield highly. Notwithstanding supply, there will always be latent notes outstanding.

Don’t assume a PIK is related to a bad company. For some credits PIKs are an intelligent instrument to lend, for example growth companies who’s capital is better served investing and ultimately creating a more credit worthy company than if interest had been paid. Please note that these examples aren’t too prevalent.

Short term, yes.

rolandtide:

Do you see a meltdown where spreads will blow out first, and then come back in to normal levels, or do you see a controlled normalization where spreads just drift wider slowly?

Slow normalization. I feel there is too much intervention for large scale blowouts to happen, but I hope it does. Unless there is a Grexit like event (it’s what I’m asking Santa for).

"After you work on Wall Street it’s a choice, would you rather work at McDonalds or on the sell-side? I would choose McDonalds over the sell-side.” - David Tepper

IB

10y

FT would seem to agree with you @Oreos

http://www.ft.com/cms/s/3/af056128-5627-11e3-96f5-00144feabdc0.html#axz…

See my other WSO blog posts>

CF

10y

Thanks for clearing that up. So, basically, you're pissed that people are willing to pay for risky bonds that aren't paying out as much as you think they should be? Sorry, I'm a complete noob.

If this is the case... Why do you think their longs will pan out?

Short Term Investments Acid Test Ratio

HF

10y

nyboarder:

Thanks for clearing that up. So, basically, you're pissed that people are willing to pay for risky bonds that aren't paying out as much as you think they should be? Sorry, I'm a complete noob.

If this is the case... Why do you think their longs will pan out?

I know the OP was written in the style of a petulant child, and that was its intention, but to say i'm "pissed" would be taking it a tad far.

Stupid guy buys bonds too high, they really stupid guy buys his bonds at a higher price. Ergo, long thesis panning out.

"After you work on Wall Street it’s a choice, would you rather work at McDonalds or on the sell-side? I would choose McDonalds over the sell-side.” - David Tepper

CF

10y

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