So, dear sceptic, you think that interest rates will go higher. Prices for debt will fall, meaning a wonderful opportunity to bet on what must occur. Easy.
Except it turns out that trading a bear market in bonds is hard. By way of example, BofA Merrill Lynch offer up the last rate tightening cycle that began on June 30, 2004. Imagine you decided to go short exactly a year beforehand.
During that period, 10y Treasury yields rose 117 basis points. However, once adjusted for negative carry and roll-down, an investor would have made only about 70bp, assuming a short position in 10y Treasuries was established on June 30, 2003 and held it for the next year.
Short-sellers must now notify the market when a net short position on a European stock reaches 0.5 per cent of the issued share capital of the company concerned and again at each 0.1 per cent increment after that. Then the information on UK stocks goes on the FSA’s website (in a particularly hard to use format).
But disclosures so far indicate that the new rules are missing a significant chunk of short-selling activity. Data from Markit suggests that, for example, Lonmin has around 17 per cent in undisclosed short interest. Read more
No doubt the California buyside was up early this morning… checking whether they had any disclosures to make under the new short-selling regulation which affects them.
That would be the European one. Read more
Terry Smith, City veteran, pugnacious former director of Collins Stewart and manager of the Fundsmith Equity Fund, has turned a critical eye onto one of our favourite subjects — exchange traded funds. Read more
As fears grow over the scale of a crisis some believe could rival the debt problems of the eurozone, hedge funds and other investors are looking at how to trade the market in America’s municipal debt, according to the FT. Political sensitivities to shorting munis has helped drive investors looking to trade muni risk to a wider CDS index backed by 50 credits, rather than swaps for individual states and borrowers. The Wall Street Journal notes that “State and Municipal Debt: The Coming Crisis?” is the provocative topic of a congressional hearing on Wednesday, which among other things will consider whether states should be allowed to file for bankruptcy protection.
Blackrock, the world’s largest asset manager — with $3,450bn under management according to figures released on Wednesday — puts out a regular quarterly review of the ETF industry.
And as usual, it presents some interesting factoids on all matters exchange-traded fund — be they product, currency or commodity. Blackrock itself, of course, is a leading player in the ETF market through its ownership of iShares and currently — according to its own report — has some $534.6bn in ETF assets under management. Read more
For sure the 2008 financial crisis lingers on in the minds’ of long-only investors, but perhaps it’s surprising to hear the episode scarred the shorts too. And not just because they got banned, scapegoated or squeezed.
Data Explorers is marking the third anniversary of the credit crunch by delving into short-selling perspectives in the run-up to the crisis’ apogee in September 2008, and its aftermath. Read more
The fear gauge. The chaos barometer. The weathercock of mild investor perturbation. Vix, Chicago’s almighty options volatility index, has been going down of late — having breached 17 on Wednesday, indicating that anxiety in equities is at its lowest since May 2008.
Except — maybe Vix doesn’t indicate anything useful at all. Read more