The Ex-Goldman Trader Who Correctly Shorted Subprime Mortgages During The Financial Crisis Has Made A New Bet (GS)
<span>When Josh Birnbaum was at Goldman Sachs in 2007, he </span>made a huge bet<span> against subprime mortgages.</span><span style="line-height: 1.5em;"> </span>
Now he's betting against something else: high-yield bonds.
From The Wall Street Journal:
Joshua Birnbaum, the ex-Goldman Sachs Group Inc. trader who made bets against subprime mortgages during the financial crisis, now has more than $2 billion in wagers against high-yield bonds at his Tilden Park Capital Management LP hedge-fund firm, according to investor documents.
On Monday, The Journal published a big report on the worries facing investors in the junk bond space amid the sharp decline in the price of oil. <span>Bonds tied to the energy sector make up about 15% of the high-yield space. </span>
<span>A few weeks ago, investment adviser Josh Brown wrote: "The question now is whether or not the slide in crude can do enough damage in the high yield market to set off a chain reaction of de-risking, default, and outflows."</span>
As The Journal reports, junk bonds this year have returned less than 1% after gains of about 7% last year and 15% in 2012.
On Friday, the effective yield for high-yield bonds closed at multiyear highs, topping 7% and also topping the yield seen during the "taper tantrum" in spring 2013.
A rise in bond yields implies that investors are worried about the ability of borrowers to repay their obligations. In the event of a default, those who hold junk bonds are often the first to take a "haircut" (in which they do not get the full value of their investment back).
The rise in the yield for junk bonds also comes amid a rally, or decline, in the yield on Treasury bonds, as investors seek safety amid unsettled markets.
Here's the crazy spike in high yield.
<span class="KonaFilter image-container display-table"><img src="http://static6.businessinsider.com/image/548ef55fecad04905e5c33d6-1200-800/fredgraph%20(17)-1.png" alt="high yield" border="0"><span class="source"></span></span>
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