Several factors are keeping credit stupid-cheap. One is the continued weakness of life insurers and the other is continued redemptions at hedge funds. That’s important because insurers and hedge funds used to buy the lower part of the capital structure of credit and asset-backed deals, that is, the first loss and mezzanine pieces. Banks were rather more concentrated in the top of the capital structure (higher mezzanine, junior AAA and up). As long as hedges continue to lose investors and life insurers quiver in terror that their holdings of bank capital securities will evaporate, spreads will remain preturnaturally wide.
Regarding the hedges, Financial Times reports this morning:Hedge funds that locked up clients’ money last year have started paying out cash earlier than many had planned, in a move that could free tens of billions of dollars – and threatens another wave of hedge fund share and bond sales....MORE
Wednesday, March 18, 2009
Credit: Still priced to panic
From the Asia Times' Inner Workings blog: