‘Sell-Everything’ Strategy Is Causing Massive Credit Turmoil

(Bloomberg) --


While the bear market in stocks has been alarming, dislocations in the corporate credit markets are arguably more dangerous for the stability of the financial system and the economy. Winifred Cisar, head of credit strategy at Wells Fargo Securities, joins the “What Goes Up” podcast to give her thoughts on the situation.

Some highlights of the conversation:

“The biggest thing that people are really worried about in the short term across the credit markets is there’s just been this massive rush for liquidity. It’s been the sell-everything strategy in the markets to raise cash, while issuers on the corporate side of things are drawing down revolvers, taking out their delayed-draw term loans, at basically a record pace. So the basic question for corporate credit is: is there enough liquidity in the system to actually back up all these revolver drawdowns and all of the cash raising by investors?”

“So we are following the Fed and other central banks very closely while also trying to figure out what the fiscal plan is from the government. And we’ve seen a number of central banks come in and say they are putting IG corporate debt as an eligible asset for quantitative easing programs and I think there is a lot of speculation that the Fed, in conjunction with Congress and the U.S. Treasury, may have to ultimately go down that path.”

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