Posts Tagged ‘income’

Payday loans – when the conflict of interests arises May 23rd, 2010

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185The purpose of creating a PQ Profile is to help benchmark Partnering Intelligence for you and your team or partners. It serves as a starting point for discussion around the Six Partnering Attributes and how you can begin to improve your partnering skills. Along the vertical axis of the PQ Profile is a scale from 1 to 6. A score for any of the six attributes below 2.5 is low; between 2.5 and 4.5 is medium; above 4.5 is high.

Based on our study population, which holds true for the general population, a difference of .4 or more between two scores indicates a statistically significant difference in the level of ability in that attribute of Partnering Intelligence. For example, if you score a 3.2 on Win-Win Orientation and your partner scores a 3.8, your partner is more likely to use a win-win style of conflict resolution than you are. The larger the gap between points on two or more profiles, the greater the opportunity for conflict.

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Shortcomings of the credit curve November 13th, 2009

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A way to avoid the shortcomings of the above-described credit curve trade are duration-neutral box trades. Essentially, the trade consists of two legs. The investor buys the long-term bond of issuer A and sells the longterm bond of issuer B. Additionally, he sells short-term bonds of the first issuer and buys short-term bonds of the second issuer. Consequently, the trade benefits from a flattening of issuer A’s credit curve and a steepening of issuer B’s credit curve. This trade, of course, can be constructed to be duration neutral. Yet, there are myriad possibilities to do this. Assuming that no borrowing and leveraging are allowed the duration of the combined trade will always lie between the durations of the second shortest and second longest bond. While the position is insensitive to changes in the yield curve, its performance in general depends not only on changes of the credit curve but also changes of the level of spreads.

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Flat credit curves imply stable spreads November 5th, 2009

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It is important to note that upward sloping credit curves imply a widening of spreads, flat credit curves imply stable spreads and inverse credit curves imply tightening spreads. Again, as with government bonds implied spreads differ from expected future spreads. Longer term corporate bonds should not only contain a premium that compensates investors for accepting higher price volatility, but also for taking on additional credit risk.

A second observation with respect to forward credit curves is related to the slope: The steeper a credit curve is, the larger is the implied spread widening. If the spread widens less or more than indicated by forward spreads over the holding period, certain bonds will perform better than others. Portfolio managers who have a strong view on the spread changes they expect for an issuer’s bonds may benefit from this fact. If, for example, they expect the bonds of an issuer with an upward sloping credit curve, as France Telecom, to widen less than implied by forward spreads, they would prefer to own longer term bonds, because the additional carry should overcompensate the capital loss due to the expected spread widening.

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