58 Comments

I warned about HYG and real yields last Dec in "The Macro Brief: Damn, Too Much Junk In The Trunk." As well as BBB potential downgrade storm. Financial conditions still relatively loose.Groeth expectations will be a huge factor.

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On the ball :)

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Lovely article. Thanks

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Thank you!

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Fantastic article. That really helped improve my understanding of this part of the deed it market. Ottimo lavoro Alf!

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Grazie!

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Hey Alf thanks for the lesson, I am new to the macro landscape. What do you think are the fundamentals I have to understand?

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Read Cullen Roche and Steve Keen’s books. Great start!

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Alf, thank you for the insights. Your interviews with Jeff and Emile are incredible, in fact the second one ended way too early. Overall, though, I am happiest about the fact you are happy to keep repeating the basics (if we can call them that). As an amateur in this area (who has been studying and listening hard for two years) and a former language teacher, I understand the importance of repetition. Keep it up, the more you keep focusing on particular issues, the more information gets knocked into our (or at least my) heads. In my case, I start to build an image of how things like bonds and collateral work, but your work is what keeps refining that image and bringing it into focus. Words are great, but it's the images (or the parallels with things I can understand) the teach (at least me) at the end of the day. Kudos man, I never imagined I could get this sort of education for free.

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Feedbacks like this make me happy :)

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New to macro econ and you do a fantastic job of explaining it. Also your interviews with Emil and Jeff are great!

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Thank you, Barry!

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Great stuff Alf, bravo

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Grazie, Walter

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Any article that starts with a Minsky quote gets extra points. Minsky becomes more relevant with each passing day (which isn't a plus for the markets...)

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I have to agree

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Thanks a lot Alf ! learning while listening to you is so cool. I thought I had a basic understanding of credit spreads market. But that was simply not the case as I realise after your podcast.

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Glad I can share some knowledge!

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Still following you Alf , Great content cheers Frank G "Detective of Money & Politics"

Melbourne Australia

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Ciao Frank, thank you!

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You are very welcome cheers Frank

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Hi Alf, I’m interested in learning as much as possible about the inner workings of the financial markets—the role of the repo market, the “shadow banking system,” the extent to which pension funds and corporate buybacks move the stock market, the exact amount of leverage in the system and its ramifications, etc. It’s so difficult to find any information that details the various constituents that make up “the market,” how big of a role each one plays, and how they interrelate. For example, only recently, because of an interview I happened to come across with Brian Reynolds, did I discover that individual active managers make up only a tiny fraction of “the market,” and that pension funds and corporate buybacks are almost entirely responsible for the roaring bull market over the past 10+ years. Where can I learn in depth about these topics? Your articles are fantastic and have helped me immensely.

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Hi Will, I’ll try to cover some of these topics in one of my next pieces :)

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Thanks Alf! I know you gained most of your insights from being "in the trenches," but I would love to know if you have any favorite books as well that you highly recommend?

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Alf is a Breath of fresh Air "Detective of Money & Politics" Frank G Melbourne Australia

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Great piece. Alf continues to democratize institutional content…

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Too kind :)

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Alf - you are the man! Found you via Eurodollar Uni and Blockworks - where have you been the last few years of my life!?!? Thank you for making your content and knowledge freely available - it is incredibly useful to this outsider/amateur. I appreciate you very much and can't wait to go through your back catalogue!

I do have question though - would it also be valid to monitor to watch Investment and High yield corporate spreads via the FRED series?

I follow these two:

https://fred.stlouisfed.org/series/BAMLC0A0CM

https://fred.stlouisfed.org/series/BAMLH0A0HYM2

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Thanks, Nick! I should look into the composition, not sure

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EU 29s trade about flat to AFLBNK (French agency) 29s. AFLBNK is a 20% risk weight name. EU is 0%. AFLBNK is comparatively much more illiquid than EU, which is maybe the most liquid name in the government related sector. So is it about liquidity/regulations or about OAT ASW? Where does KFW trade today vs where it traded at the time of this post? Have any regulations changed and/or is it harder to buy KFW?

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Hi! Those French agencies and similar government-related names are very often traded on OATs and not on swaps. That causes all sort of funny distortions :)

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Really enjoy this blog btw and has helped me a lot - just waiting for the piece on swap spreads :)

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It's coming :)

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Thanks looking forward to it.

On a kind of related note, and maybe it's a stupid question, but what am I missing here?

5y ITRAXX Main protection costs 101bp

5y German ASW = 84bp

Why is the spread between those two things so tight?

Thanks again

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Did you publish on the asset swap spread ? Cannot seem to find that component

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My next piece of the Bond Market 101 Series :)

Stay tuned

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Phenomenal article. Is there a resource or document that summarizes the various institutional asset requirement/regulations and risk management procedures? Your coverage of the subject has been extremely helpful. Thanks Alf

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I am afraid it doesn't exist, Matt. I'll do my best to keep exploring these topics :)

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