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Strategies & Market Trends : Currencies and the Global Capital Markets -- Ignore unavailable to you. Want to Upgrade?

To: TAPDOG who wrote (2046)	8/11/1999 9:25:00 PM
From: Henry Volquardsen	Read Replies (1) \| Respond to of 3536

Hi TAPDOG, We actually spent most of the afternoon discussing what has been going on with the widening of spreads. One of the things I consider important to analyzing the widening spreads is to check what spreads have been doing over the last few years. I have made the point several times that spreads have been widening for over two years. I ran some charts today and it shows that spreads had already doubled from their lows of early this decade well before the Asian crisis last year. The widening of spreads started around the same time as the budget went in to surplus. As I argued in an earlier post, there has been no real increase in government debt for two years now while there has been a significant increase in corporate debt as strong economic growth has resulted in strong credit demand. Imo this is what started the trend to widening spreads. Fwiw I saw this over two years ago and positioned for widening spreads at that time. Now I am not saying that supply demand is the only factor. Credit concerns have been a major influence as well particularly last year. But the spikes from credit concerns are not as severe when compared to the ongoing widening trend. Fwiw it's worth the spread widening has accelerated recently and I don't have a specific reason. I suspect the reason is some background concern regarding the emerging market. The acceleration came about the same time as the Argentina rumours started. I don't believe there are any significant credit concerns in the domestic markets right now. If credit concerns were the cause of the widening you would see a big reduction in liquidity. Last year liquidity disappeared in a large variety of markets. Price was irrelevant, business was not getting done. Currently liquidity is plentiful. Business is still taking place and there has been no big reduction in credit facilities. I was speaking to someone at one of the big hedge funds yesterday and they have not seen any reduction in lines. Henry