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. Beginning to look at the financial world as two feedback loopsFirst feedback loop Bubbles Hunger for yield Collapse of Risk Premia; illusion that risks had truly changed Hyper-aggressive lending/leverage, dismantling of risk models, explosion in derivatives Fragile hedges Huge overrating of CDOs, a key component of the housing bubble Inadequate transparencyIn munis: Dominance by leveraged/hedged buyers, slope scrapes bottom, credit spreads scrape bottom..
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17. Steeper slope and ratio slope
Retail order periods
Couponing—need for institutions to hold a core amount of retail coupons
Saturation issues
Wider credit spreads
Need for additional credit research
Challenges for the muni high yield sector
Liquidity concerns
Sensitivity to headline risk
Munis vs. Treasuries/Corporates, not LIBOR
Need for bond insurance