Posts Tagged ‘market cycles’

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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A bond swap on an issuer’s credit curve November 7th, 2009

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In most cases portfolio managers do not expect the spread change to occur that is priced in forward spreads. If this view is strong enough, and if the portfolio manager has proven his skill in predicting corporate bond spread changes, he may decide to bet against the market, in other words to take an active position with respect to the credit curve. Several different ways to implement such trades will be discussed subsequently.

The first trade is simply a bond swap on an issuer’s credit curve. If an investor expects the credit curve to flatten more than implied by forward spreads over the holding period, he may switch out of short-term bonds into longer maturities. In order to keep the duration exposure constant, a part of the proceeds of the sale of the short-term bonds would have to be kept in cash. Although this trade can be constructed to be duration-neutral, the performance over the holding period relative to the benchmark depends on changes of the shape of the yield curve. A yield curve steepening can lead to the underperformance of the long bonds even if the credit curve flattens.

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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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