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Jurassic


Total Posts: 136
Joined: Mar 2018
 
Posted: 2018-06-22 21:18
> the high yield market in Europe has experienced juniorisation as banks have become less willing to hold high yield inventory: "Nowadays it's all about the primary market and flow, and that means banks need a different type of trader."

What does it mean by primary market and flow??

Why does this need a different type of trader?


https://news.efinancialcareers.com/uk-en/318155/shortage-of-high-yield-traders/?_ga=2.113278212.2090769290.1529591826-1816386720.1529591826

day1pnl


Total Posts: 41
Joined: Jun 2017
 
Posted: 2018-06-26 00:05
There are these "godlike" distressed / hy traders who you can imagine pour over hundreds of pages of bond/CDS docs and then go on to make nosebleed bets on the fate of companies. Some years they break even, other years they make hundreds and hundreds of millions for the bank. Some years they fail. Banks of course want money, but they want less and less of this type of money (or so they claim).

Rather, the bank just want investment bankers issue a bond for a high yield company and take a fee. This is called primary market. Then have some junior to try and flip bid-offer on that paper later without taking too too much risk. This is called 2ndry market. 2ndy mkt making is necessary for franchise/investors so deals don't tank on day 2, but margins are shrinking so it's not really profitable. Banks want this setup because they can still make good bucks by issuing bonds, and if the junior in 2ndry flow trading can just stay out of trouble all will be fine and the "bond machine" will make money and its basically risk free....

Jurassic


Total Posts: 136
Joined: Mar 2018
 
Posted: 2018-06-26 09:53
> Then have some junior to try and flip bid-offer on that paper later without taking too too much risk.

I can never understand how this is basically risk fre?

>but margins are shrinking so it's not really profitable.

I would have thought margins in HY would still be large

day1pnl


Total Posts: 41
Joined: Jun 2017
 
Posted: 2018-07-02 21:23
bond issuance is risk free. flow trading isn't. but you can run a fairly tight ship if you keep inventory low and sell your stuff on time (= high turnover rate).

GreatBibuel


Total Posts: 1
Joined: Jul 2018
 
Posted: 2018-09-01 19:26
sorry for the basic question - are you saying bond issuance is risk-free with an assumption that buyers have already been lined up going into the primary offering? Not too familiar with credit offering docs - is there typically a requirement the bank would hold inventory of whatever wouldn't hypothetically be bought?

day1pnl


Total Posts: 41
Joined: Jun 2017
 
Posted: 2018-09-02 12:04
> are you saying bond issuance is risk-free with an assumption that buyers have already been lined up going into the primary offering?

yes

> is there typically a requirement the bank would hold inventory of whatever wouldn't hypothetically be bought?

depends on the level of underwriting

Just to be thorough, there always nuances in real world that makes it less clear cut. But that's the gist of it. Business risk can be / is correlated to market risk. So even if you don't have negative P/L to show in a market with high bond market volatility, new deals could be postponed on the back of it until market calms down (=> less fees generated).

Jurassic


Total Posts: 136
Joined: Mar 2018
 
Posted: 2018-09-06 22:29
what do you think of HY/DD mming as a career nowadays?

day1pnl


Total Posts: 41
Joined: Jun 2017
 
Posted: 2018-09-18 20:40
Both are good and respectable jobs. And they now and then often interact. Rightly or wrongly, there is more glory in distressed trading than normal high yield market making.

Distressed -> you have to love fundamental analysis, accounting, valuation, and financial statement analysis. market is highly technical (not as in fibonacci trend charts), you need to know the ins and outs of bonds, CDS, loans, and other claims. be able to generate trade ideas and evaluate soundness of those ideas because the stuff you trade is really risky.

"Normal" Hy market making -> more prone to being automated than a distressed desk. Probably good to keep some level of proficiency in programming. Who knows what the landscape will look like in 10-20 years time..
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