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Marc Schärer's avatar

Great write as so often.

But I have a potentially stupid question: why does everyone think that spreads are low because high yield risk is undervalued / ignored?

What if it is the opposite: UST are no longer considered risk less since the downgrade a few years ago, the loss on book from the yield shock and going into this years presidential election and hence the spread gets smaller because UST are considered riskier, more volatile?

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Marc Schärer's avatar

Doesn’t the FED have a magical army of hundreds of overpaid Econ PhD that can make everyone happen in parallel just like they did in 2007-2009?

No I think you are probably right regarding FED and Yelllen and that’s why I can’t shake of the suspicion that the treasuries are considered higher risk but thanks to US regulation considered as good as **** for leverage stacking to ‘hedge the risk’

If they were to really do that, 1929 could look like a walk in the park as that would put unsurmountable pressure and risk on the over 2 quadrillion of derivates when the dominos start to fall …

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