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 About Donald

Don founded Kamakura Corporation in April 1990 and currently serves as its chairman and chief executive officer where he focuses on enterprise wide risk management and modern credit risk technology. His primary financial consulting and research interests involve the practical application of leading edge financial theory to solve critical financial risk management problems. Don was elected to the 50 member RISK Magazine Hall of Fame in 2002 for his work at Kamakura. Read More

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This note is the first analysis of Royal Dutch Shell PLC (RDS.A)(RDS.B) from a bond market perspective that we have done in this series. In notes posted August 7, 2013 and November 7, 2013, we highlighted the bond market’s perspective on the risk and return of BP PLC (BP). Today’s note includes a similar analysis for Royal Dutch Shell PLC, which issues debt through Shell International Finance B.V. Shell International Finance B.V. is 100% owned by Royal Dutch Shell PLC and its bond issues are guaranteed by Royal Dutch Shell PLC. Our analysis incorporates Shell International Finance B.V. bond price data as of January 29, 2014. A total of 82 trades were reported on 17 fixed-rate non-call senior bond issues of Shell International Finance B.V. with trading volume of $59.3 million. All of this data was used in this study.

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In this report, we update the Kamakura Corporation analysis of trading volume in single name credit default swaps as reported by the Depository Trust & Clearing Corporation (“DTCC”). In today’s analysis, we look at 181 weeks of single name credit default swap trading volume data from the week ended July 16, 2010 through December 27, 2013 for 1,179 reference names.

Conclusion: We continue to find minimal “end user” trade volume for the overwhelming majority of the reference names. The exception is the trading of credit default swaps on sovereign reference names. The lack of volume in the single name credit default swap market has important implications for the profitability of dealers like JPMorgan Chase & Co. (JPM), Goldman Sachs (GS), Citigroup Inc. (C), Morgan Stanley (MS), and many other very large financial institutions.

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We first analyzed the bond market view of the Commonwealth of Puerto Rico on December 12, 2013. Since then, the drama surrounding the Commonwealth of Puerto Rico and its ability to obtain financing has intensified considerably. See “Puerto Rico Investors Bracing for Default” for background.  In this note we analyze the current market view of two key Puerto Rico bond issuing entities and show how that view has evolved since June 1, 2013, with a particular focus on trades since December 12.  We note that the credit default swaps of Puerto Rico have never traded according to the data provided by the Depository Trust & Clearing Corporation, so the bond market is the dominant source of information on the market’s view.

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On January 24 in the U.S. bond market, there were 30,175 bond trades in 4,976 non-call fixed rate corporate bond issues representing $10,175,041,704 in notional principal.  Which 20 trades were the best trades of the day, and how do we decide the answer to that question?  We answered those questions in our analysis of the best value bond trades for maturities of one year or more on January 23. Today, we answer the same questions for bonds with maturities of 10 years or longer.

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On January 23 in the U.S. bond market, there were 34,551 bond trades in 5,146 non-call fixed rate corporate bond issues representing $12,013,821,730 in notional principal.  Which 20 trades were the best trades of the day, and how do we decide the answer to that question?  We answer those questions in this note.

Conclusion: We find the best-value non-call fixed rate bond trades on January 23, 2014 were issues by Goldman Sachs Group Inc. (GS), Express Scripts Holding Co. (ESRX), Mohawk Industries Inc. (MHK), American Express Credit Corp. (AXP), Pepsico Inc. (PEP), American Tower Corp. (AMT), Seacor Holdings Inc. (CKH), Enterprise Products Operating LLC (EPD), CIT Group Inc. (CIT), Amgen Inc. (AMGEN), and Royal Bank of Canada (RY).

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