Christmas credit caroling with Matt King | FT Alphaville

Christmas credit caroling with Matt King

A holiday tradition from Citi’s credit strategist, hat tip to Tracy Alloway for passing along:

Walking in a credit wonderland

High-yield bonds, are you listening?
Leveraged loans, covenants missing
A beautiful sight
We’re indebted tonight
Walking in a credit wonderland

Gone away is the default
Multiples, now exalt
Maturities extended
Covenants amended
Walking in a credit wonderland.

In the vacuum we can lever up
And pretend the risks have gone away
Just be sure to buy a national champion
With plenty of political sway!

Spanish banks now are ailing
But they daren’t attempt bail-in
The sub debt is cheap
The price discount is steep
Walking in a credit wonderland.

The risk department doesn’t like the name
They think they could be short liquidity
But the lenders can’t afford to lose their claim
They’d rather roll than have to face reality!

Never mind the balance sheet
Credit ratings? Obsolete!
Valuations misjudged
Capital needs soon fudged
Walking in a credit wonderland.

Four percent, ain’t it thrilling
Though your clients must be willing
We’ll load up the boat,
Defaults seem remote,
Walking in a credit wonderland.

 

O little tail of downside risk

O little tail of downside risk
How still we see thee lie!
Awash with deep and dreamless greeks
The spreadsheets cannot lie.
Yet in thy dark cells shineth
The markets’ scope for fright
The hopes and fears of traders’ years
Are met in thee tonight.

For selling vol this rangebound year
Has seldom gone astray.
With bears asleep, the hedgers keep
Being killed by time decay.
And central banks encourage
The reckless search for yield
They’ve said they’ll do whate’er it takes –
No wonder risk appeals.

How casually, how frighteningly
The risks are now dismissed.
Spain’s fall to junk, Greek exit
The looming fiscal cliff.
For recent years do demonstrate
The power of QE.
What matters sovereign solvency
When you have OMT?

But history says when vol is low
There lies complacency.
The worldly wise should use this time
To buy convexity.
For if crisis strikes, then all assume
The powers will intervene
But where there is consensus
There tail risk lurks unseen!

 

Jingle bells (fiscal cliff remix)

Dancing on the edge
Of the looming fiscal cliff
Impossible to hedge
The politicians’ tiff.
It’s spending cuts we need
To cut the deficit
But taxes too must rise
That much is definite!

Fiscal cliff, fiscal cliff
Drama all the way!
Surely sense will soon prevail
And help them meet halfway? Hey!
Fiscal cliff, fiscal cliff
Washington at play
With Congress so polarized
Who knows which way they’ll sway?

Obama wants a rise
In tax rates for the rich
Yet Boehner’s compromise
Still can’t help decide which!
Republicans are bound
By Norquist’s famous pledge
There’s little common ground
Will we fall off the edge?

Fiscal cliff, fiscal cliff
Drama all the way!
Surely sense will soon prevail
And help them meet halfway? Hey!
Fiscal cliff, fiscal cliff
Washington at play
With Congress so polarized
Who knows which way they’ll sway?

On the spending side
The problem’s Medicare
We simply can’t provide
Now baby boomers have grey hair!
Republicans want cuts
A trillion, maybe more
But Democrats will not discuss
Their favourite candy store!

Fiscal cliff, fiscal cliff
Drama all the way!
Surely sense will soon prevail
And help them meet halfway? Hey!
Fiscal cliff, fiscal cliff
Washington at play
With Congress so polarized
Who knows which way they’ll sway?

The outlines of a deal
Are plain for all to see
No! False alarm! It’s been revealed
They’re going for Plan B!
This posturing is mad
And if that’s vetoed too
They’ll have to start a clean scratch pad
Unless there’s some breakthrough!

Fiscal cliff, fiscal cliff
Drama all the way!
Surely sense will soon prevail
And help them meet halfway? Hey!
Fiscal cliff, fiscal cliff
Washington at play
With Congress so polarized
Who knows which way they’ll sway?

Too late, we’ve fallen off
Let’s hope we bungee jump
Otherwise this trough
Will turn into a slump!
Hooray! The cliff’s been fixed
With short-term compromise
Too bad it’s in the abyss beyond
The real problem lies!

Fiscal cliff, fiscal cliff
Politics in play!
The only thing they have in mind
Is the next election day! Hey!
Fiscal cliff, fiscal cliff
Isn’t politics great?
They’ve left us now in such a mess
We’ve no choice but to inflate.