Will The Synthetic Products Trend Last?

FWFFPFZH3QETM4A.RECT2100What’s happening in today’s financial markets is far from boring, as finance industry specialists report there are several strange trends afoot in the market. Whether these are considered negative or nonsensical is up to the reader. One trend among some challenges traditional investment logic as cash goes down in value while synthetic products continue to rise. Investors have found themselves in a dilemma. It has been difficult to trade cash bonds while an apparent rise of liquidity has turned into a veritable heap of alternative finance products seemingly aimed at the risk reduction of corporate debt.

These products include derivatives similar to credit default swaps indexes and total return swaps. While “swaption” options seem to be coming up more and more in the news these, this particular case of investment spread may not be as critical as it seems. The craze for derivatives more liquid than the classical cash market products they have previously aimed to track has made a dislocation in markets that analysts certainly don’t understand. To get a better perspective on how this is affecting the market exactly, it is easier to look at several other factors like CDX IG, amongst others, that are tied to cash bonds. Spreads on the CDX index are going at higher levels than cash.

What is the mindset behind this type of trading? Well, exchanges between substantial liquidity of derivative indices have investors worried about their spread of investments: most indices are trading at negative value in relation to the cash market, confusing analysts as to the exact resolution of markets. Is this an attempt to salvage bad debt before it gets worse? Will these trends continue, or will cash rule again? Funding benefits may also be involved. Those sorts of dynamics are thought to be part of broader cash bond scheme whereby the bonds are actually less profitable in the long term compared to synthetic tools because they require balance sheet financing.

One good aspect of this trend involves investment services. This trend is showing that that investors may now charge less in their dealings with corporations and banks while the US government is still feeling the hit of lowered cash bond values. Those looking to finance through private investment may now be at an advantage. For those holding cash bonds, it isn’t advisable to panic. The trend in the markets is somewhat of a new phenomenon that shouldn’t discourage long-term investment strategies built around cash values. Much of Wall Street runs on a system of mathematical models that are not the best at accounting for statistical anomalies. While these statistical anomalies have been happening more frequently it isn’t to say that the long term planning should take place around them. Check you http://moneymorning.com/tag/penny-stocks-today/ for more info.

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