Back from the long Diwali holidays, time to reboot on the markets, long breaks are always good to revive and get some thoughts from your near and dear ones.
On the way back from Bhopal to Mumbai, some fellow passengers were curious about the markets and the train was late as much as 6 hours. It was a holiday special train and passengers paid a premium to board the train compare to other routine trains, they expect the train to come on time as the fare is higher. I did exchange few tweets with the railways department for delayed train.
Getting back to the theory as the fellow stranger passengers did not have a good time with markets as well, most of them were trying to time the market. Continue reading
Yesterday I was going through some of the Indian newspapers and surprised to see some articles on Indian debt market, which is a very rare scenario where the Indian market is dominated by equities. May be it was more a tax saving investment as the equity market where more volatile and IPOs were flopped.
Whereas the developed world debt market dominates where the bond market, has experiences gains and losses in response to cyclical interest-rate, It’s like business cycle during which an economy expands, contracts and recovers could be termed as market cycle.
Before getting back to the Indian bond market let’s try to see the key components of Fixed Income securities, it’s the Credit quality, yield, and maturities are key components of fixed-income securities.
It’s simple really. Just change the time horizon so it suits your stance.
I’ve seen this play out over everyone’s favorite yellow metal the past few years. Gold is down almost 40% since it peaked in 2011. But it’s still up almost 350% since 2000. Although since 1980, on an inflation-adjusted basis, it’s basically flat. However, since the early-1970s it’s up over 7% per year (or about 3.4% after inflation).
See what I did there? There’s ammunition for both sides of the gold trade to use to their advantage. Continue reading
What determines the shape of the zero curve? Why is it sometimes downward sloping sometimes upward sloping and sometimes partly upward sloping and sometimes partly downward sloping?
Lot of theories have been proposed but the simplest one is the expectation theory which conjectures that long-term interest rates should reflect the expected future short-term interest rates. More precisely, it argues that the forward interest rates corresponding to a certain future period is equal to the expected future zero interest rate for that period. Continue reading
What’s a credit event? It’s a difficult question. Dealbreaker is exercised on this, or more specifically on the issues with CDS protection holders getting paid on some unusual credit-event-like happenings:
- There are bonds.
- You buy CDS that is supposed to pay off if something goes wrong with the bonds.
- Something goes wrong with the bonds, insofar as they poof into some weird garbage-y thing or assortment of garbage-y things.
- You can scoop up garbage-y things to your heart’s content, but the contract doesn’t let you deliver them into CDS in a way that achieves the sensible result.
- Sensible Result = Face Value of Bond minus Value of Package of Garbage-y Things You Got For Your Bond
- So you get less than Sensible Result, and are screwed, and the CDS seller has a windfall. Continue reading