Archive for the ‘money issues’ 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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Credit curves of two issuers will converge November 15th, 2009

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If an investor only has a view that the credit curves of two issuers will converge, but is not sure whether this will happen at wider or tighter spread levels, he would like to construct the box trade in a way that makes it insensitive to parallel shifts of the credit curves. In order to achieve this goal the trade has to be proceeds neutral. It is worth noting that the spread-neutral box trade is almost independent of the spreads, except for the minor impact of spreads on duration.

Remember that this trade is designed to protect investors from spread changes that might adversely impact their credit curve trade. Yet, often portfolio managers not only have a view on the relative changes of the credit curve of the two issuers but also on the direction of spreads. In this case the spread-neutral box trade is not optimal. The investor would rather choose a longer or shorter duration, depending on his view on the direction of spreads.

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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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