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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: John Vosilla who wrote (37666)	8/3/2005 1:35:08 PM
From: russwinter	Read Replies (1) \| Respond to of 110194

Probably us, as Mr. Creosote, no doubt has a ratline to the Isle of Man.

To: John Vosilla who wrote (37666)	8/3/2005 2:24:17 PM
From: Ramsey Su	Read Replies (2) \| Respond to of 110194

Message 21560066 John, this is well worth reading. In many of the structured finance markets, Fitch analysts understand that some hedge funds now play a critical role in financing the least liquid, highest yielding subordinated tranches of transactions, giving them a degree of influence that far outstrips the notional size of their investments. Credit-oriented hedge funds also are able to influence pricing in all segments of the credit markets through the use of credit derivatives. Alternative investment vehicles are thought to control as much as 30% of the trading volume in the $8 trillion global credit derivatives market (CDx), according to surveys by Fitch and others (see Global Credit Markets table above). The effects of such an event would be felt first and foremost in the form of price declines and credit spread widening across multiple sectors of the credit markets. In turn, this could present challenges to some market value structures with mark-to-market and deleveraging triggers. Beyond potential trading losses, including among some prime brokerage banks, cost-effective financing for all forms of credit could be adversely affected. In Fitch’s opinion, potential ratings volatility would be felt most in the high yield sector and among borderline investmentgrade companies due to their sensitivity to liquidity access and refinancing risk. The timing of such a liquidity event would be a determinant factor. In the near term, the risks appear to be mitigated partially, as most companies have fortified their balance sheets by raising cash and extending debt maturities. However, from 2006–2008, these bond issues begin to come due, with $377.3 billion of high yield and ‘BBB’ rated bonds maturing in this period, elevating the overall level of refinancing risk.