Audio – Risk is dead…not
Eaton Vance muni bond manager Tom Metzold discusses the potential for a market correction triggered by little understood risks in the lightly regulated credit derivatives market.
“Whether it is in the credit default swap market or a leveraged buyout scenario, there is going to be a major default and all this liquidity that is out there can dry up pretty quickly,” Metzold said.
He is holding up the chart in this photo (click here to see it) to warn that there’s no middle ground in the performance of high-yield debt. If history is any guide, that asset group’s prolonged run of outperformance is likely to end sooner than later, and junk bonds will fall from big money makers to big money losers in short order.
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