CreditTrader

Broker Default Risk

The disconnect is simply due to the underlying backstop that the Fed put into the market. This has spread across much of the financials universe where we now see equity levels modestly cheap to where CDS would imply them to be BUT I do also note that implied vol is considerably too low among these names relative to their CDS levels - so a long delta-hedged Put versus CDS protection position should pay out well and also i would expect equity to underperform as the firms are forced to use equity issuance rather than debt/hybrids as Tier 1/leverage ratios come under pressure...love to hear your thoughts...

When Hedges Fail

Hey Felix, love your stuff (though think Walnut Creek/East Bay can be beautiful!) - wanted to get your opinion on the UBS/BX deal. Seems to me like they are doing nothing but the old super senior play. Pool up crappy loans, sell BX first-loss piece (at a discount), and then lend them the rest - nice bit of Basel II arbitrage (lowers capital coz first loss is gone) but the risk remains and the loan terms (we don thave them) must have been spectacular for BX to take this...also check out the Fed's lending activities in the last few days...and the US brokers are spiking in CDS land...keep up the great work.