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Jurassic


Total Posts: 96
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: 29
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: 96
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: 29
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).
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