ET NEWS

Bond fund managers have so much cash they’re turning to the derivatives market to put it to work, pushing down the cost of protection against defaults close to levels that prevailed when central banks were just starting to raise interest rates.The bets on tightening credit-default swap spreads are the latest sign of the overarching optimism that’s enveloped markets, where credit investors flush with cash have been buying up large amounts of new debt and pushing back the so-called maturity wall that was a major source of concern just six months ago. Money managers are using credit derivatives indexes like the Markit CDX North American Investment Grade Index to gain the exposure they want.“CDX is a liquid way to get credit risk when cash bonds are harder to find,” said Scott Kimball, chief investment officer at Loop Capital Asset Management. “A significant amount of the recent tightening is institutions looking to put more money to work than there are bonds available.”A “roll” of credit default swap contracts at the end of March should be a short-term boost for the credit derivatives index market and lead to outperformance, according to Fraser Lundie, head of fixed income at Federated Hermes. The roll, a release of new indexes tracking a refreshed basket of companies, effectively resets the maturity for so-called on-the-run contracts every six months and typically leads to an increase in the volume of trades.“On the long side, it’s an opportunity to extend by six months and pick up extra spread,” Lundie said. “On the short side, the opposite is true and this extra cost may psychologically weigh on some investors, reconsidering the rationale to continue holding the negative view or adjusting its size.” 108557690Mohammed Kazmi is among the investors using the synthetic indexes to express his bullish view on the junk bond market. Instead of buying individual bonds, the portfolio manager and chief strategist at Union Bancaire Privee uses contracts on the likes of CDX.HY and iTraxx Crossover indexes.“We like them because of their liquidity but also from a valuation perspective. You’re currently paid to be in CDS versus cash,” he said in an interview, referring to the relatively wide level of the derivatives’ spreads compared with that of an equivalent cash bond.CDS indexes are the most liquid instruments in the entire credit market, with hundreds of billions of dollars worth of contracts changing hands every month. Wagers on tighter spreads for high-grade contracts have sent the CDX IG and iTraxx Europe indexes to almost the lowest levels since the global financial crisis.“If you’re a fund manager and you said, ‘I thought there was going to be a recession, now it doesn’t appear there’s going to be’, you’re just a forced buyer. Maybe it’s CDX, maybe it’s individual companies,” Jeffrey Klingelhofer, co-head of investments at Thornburg Investment Management, said of the market. “You feel like you can’t miss out on it any more.” Thornburg doesn’t currently trade CDX. 108557696To be sure, the broader tightening masks some fragmentation in parts of the market. Euro-denominated bonds issued from firms rated CCC and below, which are at high risk of going bust, have missed out on the general rally. In addition, an S&P Global Ratings worldwide tracker of corporate failures in 2024 reached the highest year-to-date level since 2009, the ratings company said in a recent release.Bank of America Corp. strategists Ioannis Angelakis and Barnaby Martin this week recommended using the CDS options “as a way to insulate from the notable market euphoria,” especially in high-grade credit.Still, calls for wider default swap spreads in recent weeks have proven misplaced as credit kept rallying regardless. And with traders having already moderated their expectations of rate cuts this year, there is no obvious bogeyman left.“The question for me is how much widening can you get while waiting to be invested?” Kazmi said. “What are the triggers for very large widening? I don’t see them on the horizon.”What to WatchAbout $25 billion to $30 billion of US high-grade bond sales are expected next week, with the bulk likely coming Monday and Tuesday ahead of the results of the Federal Reserve’s meeting.In Europe, 64% of professionals surveyed expect over €30 billion ($32.7 billion) of sales in the coming week.In the US, the Fed meeting on March 19-20 will bring an updated dot plot and guidance from Chair Jerome Powell on rate cut timing.The UK will release its February CPI data on March 20. The Bank of England is expected to hold rates at its March 21 meeting.In China, headline activity data due March 18 is likely to show a slowdown, but the reality is closer to stabilization. Chinese banks will likely leave loan prime rates unchanged at the March 20 fixing.For an in-depth look at the data and events around the world that could impact markets in the coming week, see the Global Economy Week Ahead from Bloomberg Economics.Week in Review Less than a year ago, investors were gaming out what would happen when billions of dollars of bonds reached maturity dates, leaving borrowers potentially crushed by costly refinancings. Now, those fears are fizzling away, with companies rushing to sell debt to a buoyant market.Low prices. Risky underwriting. Traditional lenders are trying everything to win M&A funding deals. And now they’re being asked to provide delayed draw term loans — previously a hallmark of private credit deals.Buyout firm H.I.G. Capital is seeking $655 million of debt financing to help fund its potential purchase of mechanical and industrial cleaning company USA DeBusk.New York Community Bancorp said it will book a gain after selling a portfolio of consumer loans with a net book value of $899 million as well as a co-op loan.Morgan Stanley has tightened its spread targets for US corporate debt on stronger than expected economic growth and technicals, and sees demand continuing.Cash-strapped developer China Vanke Co. has been fighting to avoid its first-ever default, and while investors’ fears of an imminent meltdown appear to be easing, its long-term prospects are less clear.Banks may have less incentive to use synthetic risk transfers to manage their capital requirements as the US plans to change its proposed Basel III Endgame rules, and potentially completely remake them.A $164 million holdback on a commercial mortgage-backed securities deal has drawn attention on Wall Street as a potential new X-factor risk in the $1 trillion market.Banks led by Morgan Stanley are preparing to begin marketing $2.1 billion of senior secured notes to support the buyout of Truist Financial Corp.’s insurance business.Potential bidders for Sanofi’s consumer health division are mulling debt packages of about €7.5 billion ($8.16 billion), which would make it one of the biggest leveraged buyout financings in recent years.Enviva Inc., the world’s biggest supplier of wood pellets for generating electricity, filed for bankruptcy in Virginia, outlining a restructuring plan to cut debt by about $1 billion.Discount retailer 99 Cents Only Store LLC is exploring a debt restructuring, and some bondholders have hired advisory firm Portage Point Partners for talks.

Financial success is not a hard science. It’s a soft skill, where how you behave is more important than what you know. While everybody is looking at the same stock prices, same charts and has access to the same balance sheets and management commentary, not everybody has the same outcome in their trading and investing journey. This boils down to the single most important factor responsible for all the outcomes – our psychology and the subsequent behaviour that is driven by this.Most often than not this happens due to our existing beliefs and blind spots which most of us don’t even know that they exist. Below are a couple few psychological/sentiment indicators that can help you decode various phases of the market:VIX: this index generates a projection of volatility, which can show the speed and range of changing prices over a period. Investors may use the VIX to gauge market sentiment, specifically how fearful market participants feel.Put-call Ratio: This ratio analyses the volume/oi of puts, or rights to sell an asset, and calls, the rights to buy an asset, over a period. Investors use this ratio to gauge the overall sentiment of the market because it can imply a possible reversal in market trend. Fear & Greed Index: The fear and greed index is a market sentiment indicator that measures the emotions and psychology of investors in the stock market. It provides an overview of the market of whether market participants are primarily driven by fear or greed at a given time.Markets may be a voting machine in the short run but they do provide a prism to make us believe what the “group” thinks and this can lead to a variety of biases like “an illusion of being indestructible”, “collective rationalisation” or simply “being blinded to pitfalls”. According to behavioural finance theory, there are several types of cognitive biases that can affect an investor’s judgment. Being aware of the most common ones can help you avoid them in order to make more rational decisions after all, It’s not what you do in the markets that matters, but it is what you “don’t do” that counts!OverconfidenceMost people tend to overestimate their abilities in many areas. When you overestimate how much you know about the market or a specific stock, you’ll be tempted to make risky decisions like trying to time the market, which is trying to predict the best time to buy or sell stocks, or overinvesting in high-risk stocks, which are more likely to lose money.Herd MentalityHumans are social animals, so going along with the crowd is in our nature. From the hot new fashion trend everyone is wearing to the crowded restaurant that requires you to make reservations months in advance, people tend to make choices based on what others are doing. In financial markets, however, herd mentality can lead to asset bubbles, which is when the price of an asset like a stock rises rapidly but will eventually fall, and market crashes, which occur when a lot of investors sell off their stock.Loss AversionPeople feel the pain of a loss more acutely than the euphoria of a win, even if they win more than they lose. In financial terms, investors will often hold onto stocks they should sell to avoid realizing a loss. Conversely, they may sell too early to avoid further losses, when waiting for a market rebound would be the better option. Often investors with a strong loss aversion bias have portfolios that are too conservative, underperforming market norms.ConfirmationConfirmation bias explains how two people with opposing viewpoints can hear the same information, and each comes away believing it supports their opinion. When you have a firmly-held belief, you give heavier weight to evidence supporting your belief while minimizing evidence contradicting it. In finance, confirmation bias can lead you to overlook investment strategies or assets that fall outside of your bubble, causing you to miss significant growth opportunities. You may also invest too heavily in one area because you haven’t fully analysed the risks.Behavioural InvestingWhile biases are a critical component in behavioural finance, there are other key elements in the theory, as well.HeuristicsHeuristics is the process of simplifying a problem when you don’t have enough information to make a “perfect” decision. In these instances, you’re likely to use a shortcut or rule-of-thumb to make a decision that feels right. Heuristics simplify the decision-making process, which means they simplify the financial decision making process, as well. Without them, you'd have to spend much more time making decisions. However, relying on heuristics without carefully analysing investment options can lead to irrational or incorrect decisions.Mental AccountingIn mental accounting, you place different values on money based on how you obtained it. If you buy a winning lottery ticket, for instance, you might blow it all on a spontaneous shopping spree even though you carefully budget your paycheck. This can lead to irrational financial decisions.AnchoringAnchoring is a type of heuristics that involves subconsciously using irrelevant information as a reference point. Historical values are common anchors. For example, if you bought a stock for Rs. 100 but it starts losing its value, you may be tempted to hold onto it because you don’t want to sell it for less. Salespeople take advantage of anchoring by starting negotiations at far above market value. The inflated price serves as an anchor, so when they come down, it’ll seem like a good deal.Successful Trading and Investing requires a lot more than having the right process and discipline. In the long run, the hardest financial skill is getting the goalpost to stop moving.

With a range of dotted, ribbed, dessert-flavoured and even glow-in-the-dark variants, the condom category seems to have spiced up its growth rate, which nearly doubled in 2023.The Rs 1,755 crore segment grew to a five-year high last year at 13% by value compared with 7% in 2022, according to the latest IQVIA consumer health retail audit data sourced from executives.Companies said the segment is shifting away from being used for just protection to enhancing the experience. “Condoms were always sold from a safety perspective and youth felt the product was a hindrance for pleasure,” said Rajeev Juneja, managing director and vice chairman of Mankind Pharma, the maker of Manforce condoms, which has a 30.1% share. “So innovations have really helped attract younger consumers to the category. Also, women too now decide on the variants, unlike the historical trend of men being the sole decision makers.”In India, Reckitt’s Durex has a 14.9% share followed by TTK Healthcare's Skore at 8.5% and Godrej Consumer Products' KamaSutra at 8%. All have launched innovations, including ‘invisible’ condoms that come with an ultrathin design as well as vegan, chemical-free and ‘cruelty-free’ variants. 108552371While there is a growing awareness of safe sex practices and family planning, condoms have been used primarily for contraception and preventing sexually transmitted infections (STIs).Given the squeamishness that prevails, buying condoms at a store doesn’t come easy. “The taboo that exists in India around sex and any conversation related to it, does not exist in the more liberal western countries,” according to a Condom Alliance 2021 report. “Hence, the youth in those countries do not face the primary barrier — the fear of shame, with regards to use or procurement of condoms.”Still, attitudes are changing and online purchases allow anonymity. There's an increased openness toward sexual wellness over the past few years and a pandemic-led surge in online shopping allowed convenience and a discreet buying option, said Vishal Vyas, assistant vice president of marketing at TTK Healthcare.“While there was a perception that more people at home during Covid will drive the category growth, we didn't see any surge in sales,” Vyas said. “However, with companies raising awareness from a sexual pleasure point of view, there is no reason why the category should not grow to its potential.”Companies said condom usage in India is almost one-sixth that of other major world economies. “The segment has a reach of 9.3% in India and about 17-18% in the top 20% of the income group,” Juneja said. “Therefore, driving higher average sales price and category premiumisation will drive value growth in the category.” Juneja said Manforce’s retail reach at 480,000 outlets is more than double that of the second-largest brand.