http://www.financial-shark.com Best information about finances Mon, 08 Mar 2010 23:27:02 +0000 http://backend.userland.com/rss092 en The models presented in the previous chapters describe the price formation process in markets with different  structures. As we saw in the previous article, among the markets with trade pricing rules, those governed by an order-driven execution system can be organized either as a continuous or as a call auction, ... http://www.financial-shark.com/a-credit-discriminatory-pricing-rule/ As a consequence each of the mentioned types of bank capital represents its own risk class. Investors clearly have to be compensated to carry the additional risks compared with senior bank bonds. Figure 4.3 shows that on average the spread differentials between senior bonds and Lower Tier 2, Lower Tier ... http://www.financial-shark.com/types-of-bank-capital-represent-its-own-credit-risk-class/ A second method to slice the corporate bond universe, especially the financial sector, is by different degrees of subordination. We discuss the characteristics of different types of bank debt in detail. In summary, Tier 1 preferred, Upper Tier 2 and Lower Tier 2 differ from senior bank debt in two ... http://www.financial-shark.com/different-degrees-of-loans-subordination/ BBB-rated corporate bonds obviously have a very high correlation to fluctuations of credit spreads in general. Although they made up on average only 25 percent of the Euro investment grade market, the influence of lower rated bonds on market spreads is substantial. Higher quality bonds, on the other hand, exhibit ... http://www.financial-shark.com/general-fluctuations-of-credit-spreads/ Investors require a premium for taking on credit risk. Not only does this premium, in other words the credit spread, have to increase with decreasing credit quality, but one also expects a higher sensitivity of spreads to changes of the fundamental environment for lower rated credits. As pointed out earlier, ... http://www.financial-shark.com/investors-require-a-premium-for-taking-on-credit-risk/ While in a single name context ratings are often criticized for being lagging indicators of credit quality, classifying bonds by rating is one widely used method to reflect the behavior of different risk classes in credit markets. Many market participants argue that spreads themselves and spread volatilities are more timely indicators ... http://www.financial-shark.com/lagging-indicators-of-credit-quality/ The risk profile of a credit portfolio, in absolute terms as well as relative to a benchmark index, is largely determined by the weighting of different risk classes. Of course, the allocation of capital to riskier asset classes not only increases risk, but also offers ample opportunities for outperformance. From ... http://www.financial-shark.com/selection-of-your-credit-spread-class/ The tactical asset allocation in credit portfolios combines top-down- and bottom-up analyses in order to arrive at medium- to short-term investment decisions. In this step of the investment process three major subjects are tackled: Spread class selection, Sector allocation, and Credit curve positioning. When making a decision about the allocation of ... http://www.financial-shark.com/the-tactical-asset-allocation-in-credit-portfolios/ The overall sentiment of investors towards the asset class corporate bonds is mirrored in mutual fund flows. Monthly and weekly statistics, for example, from Investment Company Institute, AIG and Trim Tabs, track the net flows into the major asset classes and their subcomponents. They also give an indication about the ... http://www.financial-shark.com/the-flow-of-your-credit-funds/ In the last 20 years there were two periods, when US companies substituted equity by debt, especially by issuing corporate bonds. Consequently, between 1984 and 1990 and in the second half of the 1990s leverage rose dramatically. It also stands out that there were various periods when banks’ lending standards ... http://www.financial-shark.com/substituted-equity-by-debt/