Heinz Blasnik- Views You Can Use Message Board

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Strategies & Market Trends : Heinz Blasnik- Views You Can Use

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To: Perspective who wrote (2611)	6/24/2003 12:25:17 PM
From: LLCF	Read Replies (1) of 4905

<The swaps look like little more than a clever way for the corporate financial wizards to circumvent regulation by the credit rating companies. The regulators look at a company with a bunch of long-term debt swapped to the short end and probably don't see the problem. > There is certainly plenty of that going on... the big derivative players try [or did when I was in the game] to keep a AAA rating for the counterparties... no doubt to show the ratings folks. <Convertible bonds are even worse, though. You've got little runt companies issuing debt with rates better than the US government, all because they have a lottery ticket attached to them. People buying them are fools; to accept all that default risk in exchange for a lottery ticket is just dumb> FNM and FRE have attempted to lay off as much of their 'option' risk as possible in the callable bond market. Since they don't open their risk book, there is no way of telling how much they retain, and how much they've sold into the callable bond market. It's not simple to analyse this either since one would have to look at each call price, not just the aggregate amount of bonds out there that are callable. DAK

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