Cash versus synthetic
Been away for a while with traveling, preparing for the new job, etc. There is a pretty good (in my opinion) discussion going on over at NP:
This morning, there is a discussion of disparities between cash and synthetic (CDS) bond markets. Here is my take on the subject:
Investors in cash versus traders in cash/CDS are in many cases from two different planets and in some cases do not even speak the same language. My expectation is that cash will soon follow CDS, but for a time, cash will be artificially inflated as real money investors with significant “dry powder” who do not necessarily understand CDOs are mistakenly seeing bargains when HY widens 30 bps. Once that powder is gone, cash will soon tank as well.