Bonds, Portfolio Strategy, Banks, risk management
Contributor Since 2009
Donald R. van Deventer founded the Kamakura Corporation in April, 1990 and is currently Chairman and Chief Executive Officer. Dr. van Deventer's emphasis at Kamakura Corporation is enterprise wide risk management and modern credit risk technology. The third edition of his book, Advanced Financial Risk Management (with Kenji Imai and Mark Mesler) is forthcoming in 2022. Dr. van Deventer was senior vice president in the investment banking department of Lehman Brothers (then Shearson Lehman Hutton) from 1987 to 1990. During that time, he was responsible for 27 major client relationships including Sony, Canon, Fujitsu, NTT, Tokyo Electric Power Co., and most of Japan's leading banks. From 1982 to 1987, Dr. van Deventer was the treasurer for First Interstate Bancorp in Los Angeles. In this capacity he was responsible for all bond financing requirements, the company’s commercial paper program, and a multi-billion dollar derivatives hedging program for the company. Dr. van Deventer was a Vice President in the risk management department of Security Pacific National Bank from 1977 to 1982. Dr. van Deventer holds a Ph.D. in Business Economics, a joint degree of the Harvard University Department of Economics and the Harvard Graduate School of Business Administration. He was appointed to the Harvard University Graduate School Alumni Association Council in 1999 and served through 2021. Dr. van Deventer was Chairman of the Council for four years from 2012 to 2016. From 2005 through 2009, he served as one of two appointed directors of the Harvard Alumni Association representing the Graduate School of Arts and Sciences. Dr. van Deventer also holds a degree in mathematics and economics from Occidental College, where he graduated second in his class, summa cum laude, and Phi Beta Kappa. Dr. van Deventer speaks Japanese and English.
This graph, provided by Kamakura Corporation using daily average traded prices from TRACE, shows the bond prices for the Iconix bond issues due 2016 (in green) and 2018 (in blue). The good news is that there has been an upward trend in prices for the last few days. The concerning issue is how much more the 2018 bonds have deteriorated in price than the 2016 bonds. It is this price differential that is most helpful in implying the market's view of default risk. When bond prices converge to a common price well under par, it is a sign that the market views default as imminent. When the prices diverge, as we see above, the implied default probabilities are expected to rise between 2016 and 2018.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.