The Painful Lesson of Selling Risky, Esoteric Debt in a Downturn
(Bloomberg) -- Full episode of "Bloomberg Surveillance." Guests: Michael Darda, Paul Sweeney, Jerry Kaplan, William Rhodes, Ann Selzer and Juliana Barbassa. (Source: Bloomberg)
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There’s a big difference between investors who have the luxury of keeping their money in risky debt for the long haul versus those who are forced to sell.
An example: the first-loss piece of collateralized loan obligations, which bundle junk-rated loans and slice them into pieces of varying risk and return. These were popular with credit hedge funds in the past few years as one of the few debt investments offering potential returns above 10 percent in an era of historically low yields.