Credit Strategy

1 Alan Capper, Géraud Charpin & David Brickman BNP Paribas

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As a credit strategist, what keeps you up at night?

Two things bother me. First, exogenous shock, such as an oil price hike or military action. Certainly, we are not expected to predict this type of eventuality, but the markets tend to behave extremely irrationally in the immediate aftermath. The very time when the clients most need guidance, is the very time when it is most difficult to provide. Second, periods of low activity and price stability. It becomes very difficult to measure where fundamental value lies, and it is also difficult to figure out when the period of stability is over; it is very easy to be lulled into a false sense of security.

What is the most controversial or hard-hitting statement concerning credit strategy that you are prepared to make?

There is going to be a major regime shift in the corporate markets. Investors will move the less-frequently traded parts of their portfolios into asset-backed securities; for the rest, they will demand high levels of liquidity. Substantially higher than is available currently. Ultimately, the investors will trade off a true and accurate credit yield curve, just as in government bonds.

What is one of the best instances of where you have made or saved most money for clients over the past year?

Advocating buying autos in late February at some very attractive spread levels.

What has taken you most by surprise over the past year, as a strategist?

Lack of focus on fundamental value. Credit markets are still a long way from government bond markets in their assessment of the risk and reward of the available information. Most especially, the economic data. Indeed, the markets seem to be torn between focusing upon the big-picture macroeconomic information and the individual credit stories. As a result, they often focus upon neither.

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