Archive for the ‘merger’ Category

Gain debt independence with secure financial control April 22nd, 2010

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If you scored low in this attribute, you probably tend to be a highly independent person.While this is a valuable trait in many cases, it can be destructive in a partnership. Have you ever worked on a project and had someone go off on a tangent, leaving the rest of the team lost and bewildered? Genius, of course, often requires independent thinking.

But in partnerships, success comes from planning with others and then performing according to plan. If you’re uncomfortable relying on others for your success, you’ll have a difficult time being in partnership with others. People who are highly independent also tend to have a low ability to trust and feel uncomfortable about selfdisclosure, feedback, and change they cannot exclusively control. If you ranked high in this attribute, you probably are comfortable being interdependent and working in partnership. You may also have a high ability to trust and comfort with self-disclosure and feedback.

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When a steepening of the credit curve is expected November 9th, 2009

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When a steepening of the credit curve is expected that is not fully reflected in forward spreads a portfolio manager would have to sell the long bonds and buy short-term bonds. However, in order to keep duration constant, he would have to put more cash to work in the short-term bonds than he receives from selling the long bonds. Since real money managers such as mutual funds and insurance companies are not allowed to borrow and to leverage their positions, setting up a credit curve steepener involves taking a duration view, because the investor implicitly ends up being short duration.

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The holding period return of a loan November 3rd, 2009

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Similar analyses as for government yield curves can be done for corporate bond yield curves. The holding period return of a corporate bond is composed of the coupon income, the price change due to the change in the underlying government bond yield, and the price change due to the spread change. As pointed out before, corporate bond investors tend to take only small active positions with respect to the yield curve. They rather manage their credit curve exposure actively. Therefore, they are most interested in the analysis of the last component, price changes due to changes in spreads.

If one assumes that the government yields move to their forward rates, holding period returns of a company’s bonds with different maturities are not affected by the performance of the government bond market. As a consequence corporate bond returns in this case only depend on initial spreads and spread changes over the holding period. The forward spread curve then reflects the break-even spreads, that is the spreads that have to be observed at the end of the holding period in order that all bonds along the credit spread curve achieve the same return.

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