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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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Kamakura Blog


Morgan Stanley (MS) is both one of the world’s most important financial institutions and one of the world’s few survivors of a near-death experience in the financial crisis. In this note, we turn to the U.S. dollar bonds issued Morgan Stanley and compare its current default probabilities with those we reported on October 11, 2013. Like any forward-looking analysis, the history of the firm in question is an important aid to understanding.

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Projected one month Treasury bill rates dropped slightly along most of the 10 year forward curve, but they were down as much as 0.13% in 2024, making the projected peak more pronounced. Forward 1 month T-bill rates are now projected to peak in the fourth quarter of 2020 at 3.86%, down from a 3.90% 2021 peak projected last week. This is the fifth consecutive implied peak in one month bill rates, something not seen for a few years. The impact of the peak can be seen in the three dimensional graph of Treasury yield movements (below) and Treasury and mortgage forward rates. The forecast shows projected 10 year U.S. Treasury yields rising steadily to 3.96% in 2024. Projected 15 year fixed rate mortgage yields in 2024 show a rise to 5.81%, up 0.04% from last week. We also present three potential scenarios consistent with the implied forecast that represent alternative paths for interest rates.

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This note focuses on an updated risk and return on the bonds and dividends of Apple Inc. (AAPL) in light of the Apple Inc. announcement on April 23 that the company would pay an increased dividend of $3.29 per share on May 15, 2014 to shareholders of record May 12. The announcement and details of a subsequent 7 to 1 stock split are available here . Apple is a consumer product icon ranked first in the Forbes list of the most important world-wide brands . We have seen often in this series of notes that iconic status often leads investors’ enthusiasm for the brand to inflate prices for the firm’s bonds well beyond market comparables.

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We last analyzed AT&T Inc. (T) on December 16, 2013 using bond price data from December 13. AT&T Inc. is attractive to many analysts and investors because the current dividend yield is more than 5 percent. At the same time, AT&T Inc. is dealing with on-going upheavals in the telecommunications industry and is surrounded by rivals who are both aggressive and highly risky from a credit risk perspective.

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PepsiCo, Inc. (PEP) is an iconic name among U.S. consumer products companies. So far, in this series of notes, we have often seen the bonds of iconic names over-priced to such a degree that the reward to risk ratio for such names was far below average. Nonetheless, in today’s analysis, we make no assumptions about such things at this point. Instead, we let the bond market facts lead us to the appropriate conclusions. Today’s study incorporates PepsiCo, Inc. bond price data as of April 17, 2014 to get an institutional, bond market view of the company. We analyze the potential risk and return to bondholders of PepsiCo, Inc. using 87 trades on 15 bond issues and a trading volume of $41.9 million in today’s analysis. We also use bond market data to calculate the credit-adjusted dividend ratio for PepsiCo, Inc.

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