DoubleLine Podcasts

MMM Episode 38: Boring Beige Book, Interesting Loans and Skyrocketing Breakevens

After reviewing the week’s positive performance for stocks, negative performance for bonds, a boring Beige Book and a limited crop of macro news, Jeff Mayberry and Samuel Lau turn to the Question of the Week (16:31): the ins and outs of bank debt, aka leveraged loans or senior loans. Credits in this $1 trillion+ market, Sam notes, sit atop their corporate issuers’ capital structures, in fact, “senior to bondholders, both senior and subordinated bonds.” Senior loans, he points out, are floating rate, potentially attractive in times of rising rates and economic growth. However, this asset class comes with unique features and risks not typically encountered with marketable securities, including trade settlements that can take up to two weeks.

During the podcast’s review of market activity for the week of Oct. 18-22, Jeff takes note of the five-year Treasury yield (3:02) closing about 120 basis points and asks whether that will form the new floor for this part of the belly of the curve. In a related development, Sam also discusses “skyrocketing breakevens” in the Treasury/TIPS market. For upcoming macro news for the week of Oct. 25-29 (32:44), the podcast co-hosts will be on the lookout Thursday for the preliminary GDP release for the third quarter and Friday for the personal consumption expenditure deflator, the preferred inflation indicator of the Federal Reserve.

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