Credit Market Crazy

Touching Your Community.com

By Tracy Alloway

Negative interest rates are an odd fish in the world of finance given that they basically wreak havoc on a central tenet of investing; that investors will be compensated in some way for, you know, investing in things.

Bloomberg’s Alastair Marsh reports today on POPYM 2007-2 A3G, a 2007 securitization deal that bundled together loans made to small businesses in Spain. Trustees for the bonds appear to be halting coupon payments to the debt’s investors after a benchmark interest rate to which the deal is tied turned negative in recent days.

That benchmark rate is three-month Euribor, and you can see its rather stunning descent in the chart below:

Three-month euribor – Bloomberg

While the prospect of receiving a big fat nothing in return for holding bundled business loans will no doubt be less than inspiring for investors – it’s important to remember that things could always be worse. In theory, negative rates could result…

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