THE three investment funds from which BNP suspended redemptions in August 2007 held less than 0.5% of the money the French bank managed at the time. Yet these humble entities turned out to be the proverbial canaries in the coal mine: their spasm was one of the first signs of the impending credit crunch. The question of the moment is whether several similarly obscure funds that recently announced forced liquidations are canaries too. Do their woes reveal financial fault-lines, or did they just take exceptional risks?
The funds in question all invested in low-rated corporate debt. Investors have soured on such “high-yield” or “junk” bonds this year, causing prices to fall sharply and yields to surge (see chart). The best-known of the victims, a mutual fund managed by a firm called Third Avenue, specialised in distressed debt, on which average yields have risen from 8% in 2014 to an astronomical 18% now. The fund had lost 27% of its value this year and had seen big withdrawals, which together had caused its assets to shrink from $3 billion to $790m before Third Avenue suspended redemptions on December 10th. The firm said that the febrile state of the...Continue reading
from Economics http://ift.tt/1O64omG
via IFTTT
No comments:
Post a Comment