Hedge funds attack major banks

Christopher Joye

Coolabah Capital

In The AFR today I explain how the major bank "widow-maker" trade, which hammered bears for years as their stock prices soared, is back with vengeance: hedge funds are shorting the majors' stocks and betting on credit risks rising. Excerpt enclosed below: "AA- rated Aussie major bank senior credit default swap (CDS) spreads are now much wider than lower rated organisations like Bank of America, Royal Bank of Scotland, HBOS and Lloyds," a domestic trader said on Friday. "It doesn't make sense – Standard & Poor's has canvassed upgrading the majors' stand-alone credit profiles given they're becoming the best capitalised banks in the world." Asked what was motivating the blow-out in major bank CDS spreads, a foreign trader responded: "Hedge funds have noticed Aussie house prices have rolled over negative 3 per cent year-on-year – there's seemingly a disconnect between the real economy and financial funding costs". This is a classic case of myth becoming reality. House prices have not fallen year-on-year: they're up 7.3 per cent over the 12 months to February 7 according to RP Data. Free (VIEW LINK)


Christopher Joye
Portfolio Manager & Chief Investment Officer
Coolabah Capital

Chris co-founded Coolabah in 2011, which today runs $7 billion with a team of 33 executives focussed on generating credit alpha from mispricings across fixed-income markets. In 2019, Chris was selected as one of FE fundinfo’s Top 10 “Alpha...

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