Finding Relative Value Amid Credit Market Madness (w/ Boaz Weinstein and Ed Harrison)

TL;DR

Boaz Weinstein discusses the opportunities and risks in credit markets, highlighting the mispricing of credit and the challenges faced by investors in a low-yield environment.

Transcript

ED HARRISON: Hi, Ed Harrison here for Real Vision.  I am talking to Boaz Weinstein, who is the founder   of Saba Capital Management. Boaz, welcome to Real  Vision. BOAZ WEINSTEIN: Thank you. Hi, Ed. I am   very glad to be here. ED HARRISON: I am really  excited to talk to you. You are a credit guy.   In fact, my understanding is that you were at  t... Read More

Key Insights

• 🖤 Credit markets are currently experiencing a lack of differentiation, with many companies trading at the same spread regardless of their risk profile.
• 🧑‍🏭 The technical factors in the credit market, such as ETFs and daily liquidity funds, can exacerbate market dislocations and create mispricings.
• 😚 Weinstein suggests that the current market environment may present investment opportunities in relative value credit strategies and mispriced closed-end funds.

Questions & Answers

Q: How did Boaz Weinstein get his start in credit markets?

Weinstein got his start in credit markets through a series of fortunate events, including summer internships at prestigious financial institutions like Merrill Lynch and Goldman Sachs.

Q: What role did credit derivatives play in his early career?

Credit derivatives were relatively new when Weinstein started his career, but they quickly became a significant part of the credit market. They offered the ability to hedge exposure to credit risk and create customized exposures to different types of risks.

Q: What are the risks associated with ETFs in the credit market?

Weinstein highlights the potential liquidity mismatch in ETFs, where retail investors can trade in and out of the ETFs as if they were equities, while the underlying instruments (bonds) may not be as liquid. This can lead to dislocation and increased trading costs in volatile market conditions.

Q: How does Weinstein view the role of the Federal Reserve in the credit market?

While the Fed's intervention in the credit market has provided some support, Weinstein argues that it has not eliminated the risk of defaults. He points out that there have been significant defaults this year, even with the Fed's actions.

Summary & Key Takeaways

• Boaz Weinstein, founder of Saba Capital Management, discusses his background in credit markets and the birth of the credit derivative market.

• He highlights the importance of trade construction in credit markets and the ability to create customized exposures to manage risk.

• Weinstein discusses the current market environment, pointing out the lack of differentiation between credit assets, the risks of a liquidity mismatch in ETFs, and the potential impact of a second wave of lockdowns on credit markets.