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‘We Feel The Need To Shout About This Risk Even Louder’: Angels In Europe
"Shouting" about the "BBB cliff" isn't confined to US credit strategists.
The "fallen angel risk" story has become ubiquitous stateside as analysts, pundits and commentators of all shapes and sizes weigh in on the dangers inherent in BBB's outsized representation in the investment grade credit universe. The cat calls reached a fever pitch in Q4 when, as documented here on Friday, more than $186 billion worth of bonds migrated from A into the BBB bucket, the largest such "migration" since 2015.
How do they hedge the credit risk? In US they buy low duration bonds (3-5 years, probably one among the causes of the curve inversion by the way), VIX futures (CDS market not enough thick after 2008).
Short Dax?
I’m gonna guess they’re ultimately long USD as a hedge also, as dollars will only get bid more even in a European crash. Hence the curve inversion’s high-priority warning for the overall economy worldwide.
How much of this is Enegy related? Those energy related should be stronger in 6 months when oil prices go back above $70/ bl.
I didn’t realize an oil rebound to $70 was a certainty… You seem quite confident in that assessment.
To my knowledge only 8%. The main distribution of European corporate bonds is 20% utilities, 20% consumer discretionary, 15% industrial, 13% communications