Tuesday, July 5, 2016

Student Loan ABS Update & Ratings Mismatches

We've kept a look-out on the National Collegiate Student Loan Trust (NCSLT) shelf we inspected more fully in January this year.

At the time, we commented on the nature of all outstanding notes, originally rated AAA by Fitch or S&P, being currently rated junk (sub investment grade) -- and often in deep junk territory.  

In January, S&P had some of those notes on watch for upgrade, but those have since been attended to by S&P.  As we revisit these notes, none of those notes on watch for upgrade was upgraded by S&P into investment grade territory (BBB- or above).  And, due to a technical dispute having arisen in respect of a servicing agreement, some of the Moody's-rated investment-grade notes were placed on downgrade watch.

This shelf really shows the difference between rating agencies' approaches.  The ratings performance may say more about the viewer than the viewed.   

Just have a look at the currently ratings for each note outstanding that was originally rated AAA by Fitch/S&P or Aaa by Moody's.  For each rating agency, there are roughly 55 notes described in the table below. Moody's has roughly half of their outstanding notes, originally Aaa still in investment grade territory.  Fitch and S&P have none.

Meanwhile the following, originally AAA, note successfully paid off in full in November 2015, at a time that it was rated C by Fitch, CCC by S&P and Aa1 by Moody's. (Moody's subsequently upgraded it in December, after it had been paid off, but this was probably just due to an administrative or technical shortcoming on their side.)

The next one is a good example, too.  Originally AAA it was downgraded to CC by Fitch in 2013 and has remained there since.  Then in 2014 Moody's upgraded it to Aa1 and then in December 2015 back to Aaa, its original rating.  But in May 2016, while Moody's had just upgraded this note to Aaa, S&P took it off watch for upgrade, and left it at CCC.

Your AAA, is my CCC, is my CC...

Ratings history snapshots, above, courtesy of Bloomberg LP.

Friday, July 1, 2016

A Rocky Start to Q3

It's been a week since the Brexit vote.  And silver, not gold, has been taking off.

Usually in lock-step with gold, silver has outperformed gold by roughly 9.2% over the last 4 days.  Gold has been up 1.3%.  Silver, on relatively high volume, has gone up more than 10%.

This graph shows silver in green, each day adding to its gains over gold, in white (both were normalized at 100 for the comparison).  And we're again pointing out the suspicious volume, in red, at roughly 3:33 pm yesterday in SLV, which we commented on yesterday, almost a half hour before the day's close, (which was importantly also quarter-end).  

By yesterday, silver had moved 4.5% relative to gold.  Today, it moved another 4.5%, after opening again far higher on high volume.

Silver futures, too, show similar patterns to the ETF, and volume spikes.  Our hunch is that a bigger play was at large here behind the scenes, possibly involving or culminating in the squeezing our of some silver shorts.  Certainly, if it were a drive purely to protect against economic concerns, pertaining for example to Brexit, we would have expected to see the gold markets move in similar fashion.