Five things I learned this week: February 23rd 2014

10% of all the world’s oil comes from a single well that’s been pumping since before India’s independence in 1947 (since 1945).

Morocco has world’s around 80% of phosphorus deposits, and some say that phosphorus (which is used as the key, if not one of the main fertilizers in the world) will peak in 2030 (P production would peak by 2030). As an aside phosphorus contained in human pee (if “mined”), on an annual basis, is estimated to be capable of fertilizing 50% of the grain consumption of the same person.

I was reading an article which talked about how diversification is much more important in fixed income securities than equities because in equities you can possibly get, let’s say, 3x returns on an investment, but in fixed income, at best, you get a little bit above par (assuming no leverage), but if one of the notes blow up, you can get 40c on a $1 (recovery rate is 40% for an impaired U.S. HY issue).

As another example of the market showing two characteristics (information-driven and inventory-driven), and inventory-driven market offering more opportunities for an investor, broker-dealers tend to make markets in fewer bonds, which causes more liquid bond complexes to trade off more quickly. Retail focused bonds sell more liquid bonds to satisfy redemptions, putting pressure on the liquid bond complexes.

Historically, correlation of the high yield market to 10-yr treasury is close to 0, even -ve. This is because in a normal environment, rates rise when the businesses are doing well, which means that the spreads of the bonds to the treasury would also collapse. You can reach a point though where the spread can’t collapse any more but the 10-yr rate could keep going up.


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