Bond Trading 101Last dump of knowledge i PROMISE. Jeeze you longs will miss me because I definitely educate these shorts.
Say Im a debt fund. I have risk I need to move. Or CXRX no longer fits my FUND. I would sell it. TADA a bank shows up.
- It buys the bond at the YIELD it wants it at.
- BOOM you now have a market maker.
Why doesnt the bank just hold it? Because a bank CANNOT proprietory trade. It can only be long/short. HY Debt carry large capital charges - so you quickly bank the spread. BUT HEY wouldnt someone short the debt? Get fing real lol. There are no CDSs on concordia. The debt pays a 9.5% coupon - AS A SHORT YOUR NOT ENTITLED TO IT.
So back to my story. I buy the debt for 76, sell it for 79. OMG another fund wants to move risk? Wow i get it for lower 66 and sell it again for 69.
BUT THE FACT OF THE MATTER IS: volume is SO low. The only one making the market is the bank. Most funds will NOT sell unless it actually doesn't fit the funds prospectus (which case they are LEGALLY NOT ALLOWED TO HOLD).
As fundamentals improve (ratios people) funds will start accumulating and yields will slowly fall.
Education session complete. Please guess what I do for a living. Thank me later. See you guys in Q3 when I have updated numbers to work with.