In this episode, we're stepping away from our ordinary world of futures and options to find out why boring old corporate bonds aren't all that boring after all. Join our conversation with Greg Obenshain, Partner and Director of Credit at Verdad Advisers, as he and Jeff discuss just what running a high yield bond investments portfolio is like. Greg shares the complexities of accessing and organizing the needed data to run a quantitative model on bonds (think no central exchange nor shared order book, etc.), how he racks 'em and stacks 'em, and why there should always be a fundamental lens on quant outputs at the end of the day. He gives some real-world examples talking about the bonds of Netflix, Crocs, and Oil& Gas companies; and why there's a sweet spot between BBB and B-rated bonds.
Speaking of ratings, we ask Greg how his custom quant model assigns his own ratings, how and why those differ from the ratings agencies, and why multi-billion firms don't model this area of the high yield market similarly (he says it's not sexy enough). We finish the chat touching base on some topical bond/rates areas, such as Evergrande's potential default, the debt ceiling, yield farming, private credit, private equity's big debt appetite, and more. You'll also find some nuggets on duration, stripping out Treasury yields, and what both retail and institutional investors typically get wrong when considering holding bonds in a portfolio. Enjoy the chat!
Chapters:
00:00-02:47 = Intro
02:48-07:27 = London Tea, a Midwest Twang, and Dartmouth Green
07:28-20:50 = Becoming a Quant, Finding Verdad, and Racking and Stacking
20:51-41:24 = Finding Growth vs Getting Paid for Default Risk
41:25-56:15 = Cash in and Cash Out, and Record Tight High Yield Spreads
56:16-01:09:10 = High Yield Risk, Private Credit, and what everyone gets wrong about Bonds
01:09:11-01:14:02 =Favorites
Follow along with Greg on Twitter @GregObenshain and learn more about Verdad Advisers at verdadcap.com
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