The material on this site is for financial institutions, professional investors and their professional advisers. It is for information only. Please read our Terms & Conditions, Privacy Policy and Cookies before using this site.

All material subject to strictly enforced copyright laws. © 2020 Euromoney, a part of the Euromoney Institutional Investor PLC.
Opinion

The bond game changes

Investors who bought into the bank hybrid argument are unlikely to do so again in a hurry.

Spare a thought for bondholders. In the first phase of the crunch, credit markets were crushed mainly because of mark-to-market volatility – as illustrated by the rating agencies’ actions. Standard & Poor’s downgrades in the financial sector this year amount to $1.2 trillion – outweighing the number of upgrades by a factor of 20 to 1.

This financial crisis is also widely known as the sub-prime crisis but at the moment the real losses, of the kind that arise through a bond actually defaulting, have been relatively limited. The losses in sub-prime RMBS and their resecuritization into ABS CDOs will be substantial. S&P estimates sub-prime RMBS and ABS CDO losses will amount to $378 billion but that is projected losses not defaults.

The demise of Lehman and WaMu has clearly had a dramatic impact on the actual number of defaults that investors have suffered – losses of $150 billion – with who knows what likelihood of recovery.

Ever since the Enron/WorldCom debacle, investors in high-grade bonds had thought that buying regulated bank assets would protect them from jump-to-default risk. To some extent the market had priced in the likelihood that Lehman and WaMu could default.

You have reached premium content. Please log in to continue reading.

Read beyond the headlines with Euromoney

For over 50 years, our readers have looked to Euromoney to stay informed about the issues that matter in the international banking and financial markets. Find out more about our different levels of access below.

SUBSCRIBE ONLINE TODAY

Unlimited access to Euromoney.com and Asiamoney.com

Expert comment, long reads and in-depth analysis interviews with senior finance professionals

Access the results of our market-leading annual surveys across core financial services

Access the results of our annual awards, including the world-renowned Awards for Excellence

Your print copy of Euromoney magazine delivered monthly

£73.75 per month

Billed Annually

FREE 7 DAY TRIAL

Unlimited access to Euromoney.com and Asiamoney.com, including our top stories, long reads, expert analysis, and the results of our annual surveys and awards

Sign up to any of our newsletters, curated by our editors

LOGIN NOW

Already a user?

We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree