Jaime Marx

Monitor: US BSL CLO New Issue Arb Trend Since 2017 The median arbitrage metric YTD at 195 bps is actually lower than in both 2022 and 2023, but this year’s new issue volume has already far exceeded the past two years’ volume on an annualized basis. Similarly, 2018-vintage deals had the lowest median arbitrage metric at 191 bps, but 2018 was a record-breaking year for new issue #CLO volume at the time. On the other hand, 2020-vintage deals had the best median arbitrage metric at 243 bps, but their new issue volume was the lowest. If you’re interested in learning more about the premium content or would like a walkthrough of the website via Zoom, please don’t hesitate to email me at info@clopremium.co.uk. https://lnkd.in/e6sUTfjw

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When an EW, non-rebalanced index of the major U.S.-listed copper producers is compared to the iShares U.S. Basic Materials ETF (IYM), Fundametrix shows us that after some choppiness over the past 2 years, these copper equities began showing definite strength against IYM at the start of 2024's second quarter. #copper #gold

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Dan Alderson's article on single name Credit Default Swaps is very much worth reviewing for all high-yield cash and derivative traders. While it is very complicated, from my perspective that is one of the main points. Dan makes the following observations: "The International Swaps & Derivatives Association will imminently publish findings of an independent review of the Credit Derivatives Determinations Committees, which it created back in 2009 when it hardwired credit event auctions into CDS settlement as part of the Big Bang Protocol." "This is pertinent when various distressed corporate borrowers — Altice, Ardagh, Atos and Intrum among them — are credit event candidates." "Crucially, any changes to DC rules require the backing of a supermajority of its members. That presumably puts a rather hefty obstacle in the way of any proposal to, say, completely replace the DC with another mechanism." "Isda, which used to oversee the DCs, moved to disassociate itself in the post-crisis years. In October 2018, it transferred its secretary role to DC AdministrationServices, which has ‘management support services’ from Citadel SPV — a somewhat mysterious entity not affiliated with Citadel Americas." “The current system is not good for those market participants that are not part ofthe DC but it also puts a huge burden and risk on DC members,” says Carlos Pardo, an independent CDS specialist who advises on credit event matters. “It is preventing the volumes from recovering but the need for the product is there.” "The Europcar auction in January 2021 was loudly lambasted in the press (lapping up the outrage of unnamed sources) for returning a 100% recovery price. It turned out the reason this came unstuck was because so many opportunists piled into shorting the name, once the credit event question had been raised, that orders outstripped available bonds. Those who had been short before on a genuine credit conviction had long since cashed out, before the auction operated exactly as its rules dictated." These are mostly the same issues we had in trading single-name CDS before the GFC. Furthermore, prices even for on-the-run 5y contracts are traded OTC and the trades are not posted on a public exchange, nor are historical prices freely or easily available. For off-the-run contracts, this problem is exacerbated. The majority of single-name CDS trades/traders are seeking to manage spread risk rather than default risk. However, the complexity of this product increases meaningfully once the paradigm shifts from trading with a focus on spread to an imminent default scenario and recovery analysis. #cds #derivates #isda

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THE END TO FED-WATCHING Yesterday on Bloomberg News we discussed how the Fed has taken the backseat to the US Treasury. Jannet Yellen has a much bigger effect on both inflation and yields, via debt issuance and driving growth higher ahead of the election, at all costs. Today the Fed will more than likely announce that it's keeping rates high, and investors will look for hints as to its next moves. They -really- shouldn't. The Fed's commentary has shifted many times in the past few months, suggesting that they are not in the driver's seat. Investors are better off if they just wait patiently for the election to end and accept that inflation may hover above 2.5% for the next couple of years - which could possibly make the current rate close to "appropriate". Mazars Mazars in the UK #markets #Fed #interestrates #economy #wealthmanagement

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I've traded STIR for over 18 years. Couldn't help notice interesting surge in volume in SOFR Z4-Z5 calendar as spread narrows to 58bp. It is interesting as not only the market has begun to price fewer cuts in 2024, it has taken out more than an entire cut from 2025. Is the market beginning to price higher for longer? This could also imply that if the Fed cuts too soon, inflation might reaccelerate. It opens up some really interesting trades in mid curve options for me. What are your thoughts?

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May’24 FOMC  Powell sounded dovish in his press conference - some soundbites -Reduced QT size by $ 35 bio, adding uncertainty to duration of QT  -Will reinvest excess principal payments on agencies in UST ie. -Passive QT, active QE - overall Balance Sheet shrinks but duration increases -Pointed to soft indicators of job market to justify restrictiveness of policy  -Reiterated restrictiveness of policy despite resilience of activity & easing FCI -“Higher for longer” is the preferred means of tightening - not hikes -Pinned onus on data to run hot for justifying hikes - ruled out  hikes categorically  -Admitted progress on inflation is slow, delaying policy normalization....but -Rate cuts still on table, unless sustained evidence of upside pressure on inflation  -Rejected there is stag or inflation to dismiss stagflation concerns -Reiterated political compulsions will not hinder actions - elections don’t preclude cuts In sum, if hotter data needs to be sustained for the Fed to even consider hiking. The bar for cutting seems a lot lower.  If we do get a correction in asset markets, the Fed has the option of using FCI argument to turn less restrictive.  If there are isolated bank failures, they will be managed by the FDIC.  Overall a very dovish read and ‘Powell Put��� is very much in play.  “Sell in May” at your own peril  

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The Fed tacitly announced QE via twist in its last FOMC by letting its maturing bonds run off, but reinvesting the principal maturities in its agency portfolio. The passive run off was meaningless in terms of duration and liquidity when there is so much surplus liquidity. But the active purchases which will now be almost 63 bps of GDP equivalent p.a , will continue to grease the asset markets and slow the pace of bear steepening. Add to it the reduction in taper to the tune of 420 bio. Incrementally the markets are getting 420 bio of liquidity and 180 bio of duration purchases p.a. The Fed will keep finding ways to stimulate even if they don’t cut rates. That is as bullish as the Yellen twist in Oct’23, if not more. SPX to 5400 https://lnkd.in/gNx3hUzJ

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Technical Analysis: I really don't know how traders trade without technicals. The chart below shows how the bias was short for today's session. The composite volume profile showed there was an interesting level at about 504. It's not always perfect as there was a false break of the low yesterday but today the traders in the live trading room discussed a move toward 500 if Tuesday's the low of 502.22 was taken out. The price made a new low came back to the value area and then dived again. In addition to this, look at the volume at the close. Again another sign that the market is bearish. On the higher timeframes the view will only change if there is a bullish engulfing candle or a strong rejection at a support zone. DM me for more information about our prop trading group.

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DBi seeks to find the simplest, most efficient path to replicate the pre-fee returns of #hedgefunds. Allocators often question whether it's too simple. Here's an astonishing quote from Nick Patterson, a pioneering quant at Renaissance Technologies LLC: "I think the most important thing to do on data analysis is to do the simple things right. So, here’s a kind of non-secret about what we did at Renaissance: in my opinion, our most important statistical tool was simple regression with one target and one independent variable. "It’s the simplest statistical model you can imagine. Any reasonably smart high school student could do it. Now we have some of the smartest people around, working in our hedge fund, we have string theorists we recruited from Harvard, and they’re doing simple regression. Is this stupid and pointless? Should we be hiring stupider people and paying them less? And the answer is no. "And the reason is nobody tells you what the variables [are] you should be regressing. What’s the target? Should you do a nonlinear transform before you regress? What’s the source? Should you clean your data? Do you notice when your results are obviously rubbish? And so on. "And the smarter you are the less likely you are to make a stupid mistake. And that’s why I think you often need smart people who appear to be doing something technically very easy, but actually usually not so easy." "Do the simple things right" and "don't make a stupid mistake" sums up what Mathias Mamou-Mani and I have sought to do for fifteen years. #hedgefunds #ctas #ucits #etfs

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An interesting summary of the S&P move so far this year for anyone interested. "Nvidia (NVDA) accounts for 34% of the 14% SPX year-to-date gain, and five stocks have accounted for 60% of the S&P 500 total YTD return; MSFT, NVDA, GOOGL, AMZN, and META have collectively surged by 45% and now comprise 25% of the S&P 500 equity cap." https://lnkd.in/e8_dN4Er

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Spot #Ethereum #ETFs. approved by #SEC. Normally ETF creation is bullish for an asset, but in this case we might just see a switch from Futures into spot. #BTC did have a bull run since Spot ETF approved, although flows indicate this was for different factors, too. https://lnkd.in/e9uqJYj3 #crypto #etf #investment

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Input costs are rising but output prices (for manufacturing) and prices charged (for services) have moderated per S&P Global U.S. PMIs

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