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 About Martin

Martin Zorn currently serves as Kamakura's president and chief operating officer.  In this role he oversees all day-to-day operations serving Kamakura risk management clients in 37 countries.  He joined Kamakura in January 2011 as chief financial officer and chief administrative officer. Read More

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Managing Director, EMEA
Phone: +49.17.33.430.184

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Over the past several years the changes in regulations have transformed the landscape for public funds. On the one hand it has increased the attractiveness of public funds for community banks and has also increased the management challenges for state Treasurers. The largest banks currently hold the majority of the public fund deposits in the U.S. according to FDIC data. With the implementation of the Basel III Liquidity Coverage Ratio (LCR) these deposits become less attractive to the large banks given the run-off rate calculations required by LCR and requirement for collateralization. While public funds are less attractive for the large institutions they remain very attractive for the community banks that are not affected by LCR.

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While often attempted history proves that one cannot repeal the business and credit cycle.  The cycle always seems to be the same although the triggers and environment may be different.  Losses peak, loan demand and supply dry up, the appetite for risk evaporates while households and businesses begin the process of repairing their respective balance sheets.  Slowly investors start stretching for yield and lenders (banks, shadow banks and capital markets) begin to ease credit terms, soon followed by increased usage of leverage.  A review of the Federal Reserve Senior Credit Officer Survey bears out this cycle. 

This cyclical nature of credit and default risk can clearly be seen from the history of the Kamakura Troubled Company Index going back to its introduction in 1990.

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The Kamakura troubled company index measures the percentage of more than 36,000 public firms in 61 countries that have annualized 1 month default risk over one percent. An increase in the index reflects declining credit quality while a decrease reflects improving credit quality. The default probabilities are produced by KRIS (Kamakura Risk Information Services) version 5.0 Jarrow-Chava reduced form default probability model, a formula that bases default predictions on a sophisticated combination of company-specific, market and macro-economic factors. The default probabilities are updated on a daily basis and have proven to be highly accurate in their predictive ability.

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Since our last update on the Commonwealth of Puerto Rico, events have been unfolding rapidly. On Friday, the Senate in Puerto Rico approved a $3.5 billion bond issue. The Bond Buyer highlighted events in Puerto Rico in its weekly review. Hedge funds, the likely potential buyers of the new bond issue(s), are demanding that governing law change from Puerto Rico to New York. Speculators are beginning to sense a <a href="http://www.bloomberg.com/news/2014-02-18/biggest-puerto-rico-owners-see-

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On February 26 in the U.S. bond market, there were 24,966 bond trades in the senior non-call fixed rate corporate bond issues of 760 bond issuers representing $7,919,219,136 in notional principal.  Which companies were the leaders in trading volume, and why were they the volume leaders?  We answer those questions in this note.

Conclusion: Cisco Systems Inc. (CSCO) was the trading volume leader on February 26, 2014. Following in ranks 2 through 6 were Citigroup Inc. (C), Goldman Sachs Group Inc. (GS), Morgan Stanley (MS), and Novartis Capital Corporation, an affiliate of Novartis AG (NVS).

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