Eurodollar

A spread near 1,100 basis points means investors want approximately 11 percentage points of additional annual yield to own the weakest category of publicly traded corporate debt.

That is distressed territory, and it's a flashing yellow warning sign, according to Peter Buchvar, who was kind enough to stop by and share his thoughts with our other channel, Eurodollar Talk.

In an interview, we had a lot to say you're not going to want to miss.

That's going to come out probably next week, like I said, over our other channel, Eurodollar Talk.

Now, CCC-rated companies often have high leverage, weak cash flow, limited liquidity, and they have frequent refinancing needs.

Many remain alive only as long as lenders are willing to extend maturities and provide additional capital.

When you look back on your education, how would you have done it differently to prepare you for what you know today?

Well, the only thing that I did in my education that has anything to do with what I ultimately did in my career was that I wrote my master's thesis on the Eurodollar market.

Oh, wow.

And, uh, the Eurodollar market at the time was a new burgeoning market of trading in offshore dollars.

Hmm.

Uh, and, uh, when there were lots of restrictions on, uh, what people could do in terms of holding dollars offshore, and the Eurodollar market really essentially took a, what was meant to be a regulated market and turned it into a completely unregulated market.

So that's, I wrote my master's thesis on that, and then went to, uh, DC, as I said, to begin my career, and of course, had nothing to do whatsoever with, with, uh, the Eurodollar market, albeit I was working for something called the Bureau of International Commerce.

So I was having, doing international trade shows, trade missions.

And as I look through the rest of the year and then into next year, I think European politics could be one of those areas that we start focusing on again.

And if you've got a spillover from higher levels German yields into much higher French and Italian yields, that would tend to be a negative Eurodollar environment.

So we're very much watching the reaction function of the ECB versus the Fed, but we're also increasingly focused on these political risks.

And certainly that comes up in more of our client meetings than it did, say, six months ago, because the political environment in Europe had actually gone relatively quiet, but it feels like it's going to heat up over the next sort of six months and probably requires much more focus.

Yeah, Paul, I'll tell you that in my client conversations as well, you certainly get the sense that some maybe a bit more concern or pessimism might be sneaking into the outlook for Europe, whether it be because of the looming potential politics, certainly, as you rightly mentioned, but also energy prices with natural gas, you know, back, you know, through the highs in Europe, certainly some greater focus on natural gas as we head into the cooler season in Europe, which I think will be welcome for a lot of our European listeners after a pretty brutally hot summer.

I certainly get the sense that maybe some more, I wouldn't say necessarily necessarily pessimism, but maybe a bit more focus on, you know, some of those potential risks creeping into the discussions of Eurodollar, which, frankly, I'll take some of your words in these past podcasts has felt like it's been a dollar story for quite a long time, maybe a little bit more focus on some of those European fundamentals.

Yeah, I think that's all very clear, Brian.

One of the currencies that we haven't covered yet, and that's the yen, one of the best performing currencies, certainly the fall in dollar yen over the last couple of weeks, and especially this week, because it seems to have got a bit of a mind of its own now, rather than maybe being influenced by other factors.