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In the post
13 September 2007
Read more:
securities lending
repo
securities finance
subprime crunch
volatility
commercial paper
SQUEEZING THE INDUSTRY
DEAR SIR,
The recent credit volatility in the market has had a notable effect on securities finance businesses globally, even though most securities finance businesses run a Delta One risk profile.
Entities normally running commercial paper carry trades are at a virtual standstill. The trade is simple – firms issue commercial paper, raise cash and finance lower grade collateral with that cash via repo or some other securities financing vehicle. The spread between the cost to issue the commercial paper and the financing trade is the net spread.
Unfortunately, the appetite for investors to buy commercial paper, especially asset-backed commercial paper, is thin at the very best. Even from issues that are considered the most valued brand names.
Although this strategy is very likely not a big part of the equity and fixed income securities finance funding protocol, alternative cash lenders that have a straight liquidity draw from...
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