Wednesday, January 4, 2012

Climateer Line of the Day: Lying Bond Salesman Edition (TLT; HYG)

...“The ability to pick up incremental yield while not taking additional risk makes esoteric ABS attractive,” Wishengrad, [Barclays Capital] co- head of securitized products origination, said in a telephone interview. “Given the low-rate environment, investors view moving into less traditional asset classes as more attractive."...
Roger that, buy the perpetual motion machine and they'll throw in a free lunch, over.

From Bloomberg:
Bond Exotica Gains Favor in Era of Low Rates
Sales of bonds backed by everything from timeshare rentals to shipping containers to entertainment royalties are poised to rise this year as investors seek to boost returns with interest rates at about record lows.

So-called esoteric asset-backed securities issuance may soar 12.9 percent to $35 billion, compared with debt linked to more traditional collateral such as auto and credit-card loans, which will grow 8.75 percent to $87 billion, according to a forecast from Credit Suisse Group AG....MORE 
Perhaps Madame et Monsieur would also be interested in:

David Bowie’s Role in the Credit Crisis
We touched on this last year in "Grid: Lights Out: Five Years On, Is Another Big Blackout Likely?":
As David Bowie, electrical engineer and financier*, said in TVC15:

From Minyanville:
The financial crisis that began in August 2007 had relatively little to do with traditional bank lending…Its prime cause was the rise and fall of "securitized lending," which allowed banks to originate loans but then repackage and sell them out.
-- Niall Ferguson, The Ascent Of Money
The dust is still settling from the great market crash of 2008-09, and we still don’t know exactly who or what to blame. It might have been securitization, but it probably wasn’t David Bowie.

Securitization is the process of taking a group of assets and transforming them into a tradable security. By aggregating them into one large pool, investor risk is, in concept at least, distributed more evenly. Asset-backed securities resemble bonds in that they pay a fixed amount of interest over a specific time period.

These securities can be backed by mortgages, credit card debt, car loans, or anything else that will (theoretically) generate future cash flow.

Like song royalties, for instance.

In 1997, a fellow named David Pullman introduced the world to Bowie Bonds....
Here's one of the songs that was included in the deal: