Monday, October 20, 2014

Did Pimco become the market for high yield?

Humble etc shorten your blog name you git - not the bottom yet.

He thinks it's not the bottom, but he conflates the Euro Collapse Crisis of 2011 with this year's meaningless bout of lemmingness so I don't have a lot of respect for his opinion.

Frankly if this thing were like that thing then we'd be reading about the imminent collapse of something or other, and I've even been checking in at BI and Zerohedge and I haven't found anything written about an imminently collapsing thing yet.

But at least he gave us an interesting quote from Dealbook:
When it comes to high-risk bonds, the asset management giant Pimco has pretty much cornered the global market.

Be it bonds issued by the automotive financier Ally Financial or the student loan financier SLM in the United States, or government bonds in Spain and Italy, Pimco holds a commanding position in these high-yielding securities.

But as Pimco’s portfolio managers double down on their bet that high-risk bonds will thrive in a world of low interest rates, a growing number of global regulators are warning that the positions being taken on by the big asset management firms pose a broad danger to the financial system.

These concerns were amplified this week as stock markets gyrated, the yields of high-risk corporate and European bonds spiked upward and, crucially, trading volumes evaporated.

Regulators and bank executives have cautioned that an accumulation of hard-to-trade, risky bonds by a small group of fund companies could turn a bond market hiccup into a broader rout, in light of how illiquid many of these securities have become.
Stupidest thing in the world that you could ever do is become the market in anything.

Cos then when your psychopathic boss quits and you lose a few billion dollars worth of investors in the process, your selling ends up looking like this:

Doesn't it?

There's no reason for HYG to seesaw down one week, up the next, down the next and up the next, other than that some idiot has become the market and is desperate to balance their books.

I guess, if Pimco's not sold everything off yet, we'll get another week of weakness this week.

And then that will bleed through to equities because reasons.

Not that there's any reason to even sell high-yield. Because you're supposed to own it for the coupon, not because you're a smartass day-trader. The swings in even high-yield are such that the only way a company like Pimco will make money is by clipping the coupon and reinvesting.

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