2 min readIn April 2007 increasing losses sustained by bonds with exposure to subprime mortgages became apparent. [See “The Subprime Flu,” April 2007] In the months that followed, this brought on a widespread credit contagion and took many investors by surprise. Among the hardest-hit areas was the short-term credit market that came to a screeching halt in…
2 min readExecutive Summary Ratings don’t tell the whole story. A basket of bad apples won’t make a good pie. Hidden leverage may sneak up on you. Not all repos are alike. Extension risk may cost you more. Structured notes equal speculation. Do you want to “buy” or “sell” protection? Hedge funds are not for the faint…
2 min readExecutive Summary Since the introduction of the first fund in 1972, institutional money market funds have gained a well deserved position in most corporate cash portfolios, thanks to their safety, constant share price, liquidity, and competitive yield. But money market fund investing is not risk-free. In the last 15 years, at least one institutional fund…
2 min readExecutive Summary The most compelling argument for total return strategies is demonstrated by a difference of 1.73% in annualized returns between the 1-month and the 1-3 year Treasury benchmarks in the 1995-2004 period. The return difference translates into $26.6 million for a hypothetical investment with a starting value of $100 million. Even though neither of…
1 min readExecutive Summary ABCP can be a good investment choice in large corporate treasury accounts due to the depth, liquidity, flexibility, and yield potential of the asset class. ABCP gained popularity recently because increased event risk of corporate names resulted in concern about unsecured commercial paper. A potential investor of ABCP should carefully review the strength…
2 min readResearch Highlights The ratio of roughly 3 to 1 single-A vs. double-A issuers suggests a liquid market sector and potential for better risk diversification. One-year default probability but a single-A corporate issuer was 0.02% in the last 10 years. Investing in single-A securities would have increased cumulative credit losses by 0.20% over a five-year span…
3 min readOn the day Merck announced the withdrawal of its arthritis drug Vioxx, its stock price closed down 27% from the previous day. By the time Moody’s downgraded Merck’s debt to Aa2 40 days later, the formerly AAA-rated company had lost 42%, or $58 billion of its equity value. Is it time for investors of short-duration…
2 min readIntroduction Corporate treasurers frequently make investment decisions based on debt ratings from nationally recognized statistical rating agencies, namely Moody’s, Standard & Poor’s, and Fitch. This article addresses the credit risks of Auction Rate Securities (ARS) that are not adequately addressed by long-term credit ratings alone in short-term investment selections. Long-Term Ratings Do Not address Short-Term…
3 min readThe latest debacle at Fannie Mae is perhaps the deadliest in its existence as a Government Sponsored Enterprise (GSE). The latest discoveries by the Office of Federal Housing Enterprises Office (OFHEO) could ignite a firestorm that may result in dramatic makeovers at the very heart of the organization. As a corporate treasurer, should you sell…
2 min readMoody’s Review for Downgrade and Fitch Rating Watch Negative: AMS-3, 2003, LP, Class A-1 auction rate note (Aaa/AAA) AMS-3, 2003, LP, Class A-2 auction rate note (Aaa/AAA) AMS-3, 2003, LP, Class A-3 auction rate note (Aaa/AAA) AMS-3, 2003, LP, Class A-4 auction rate note (Aaa/AAA) AMS-3, 2003, LP, Class B auction rate note (A3/A) Opinion…