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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 Corporation
2222 Kalakaua Avenue

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Honolulu HI 96815

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Fax: 808.791.9898
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In this note we analyze the current levels and past history of default probabilities for Time Warner Cable (TWC).  We compare those default probabilities to credit spreads on 540 bond trades in 9 different company bond issues on July 26, 2013.  Time Warner Cable has some of the lowest default probabilities of any firm analyzed in this series of credit notes to date. Trading volume in these 9 Time Warner Cable bonds on July 26 totaled $68,745,000, and the analysis in this note is based on those traded prices.

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Today’s forecast for U.S. Treasury yields is based on the July 25, 2013 constant maturity Treasury yields that were reported by the Board of Governors of the Federal Reserve System in its H15 Statistical Release at 4:15 p.m. Eastern Daylight Time July 26, 2013. The forecast for primary mortgage market yields and the resulting mortgage servicing rights valuations are derived in part from the Federal Home Loan Mortgage Corporation Primary Mortgage Market Survey ® made available on the same day.

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In this note we analyze the default probabilities for United States Steel Corporation (X), and compare those to credit spreads on 189 bond trades in 6 different company bond issues on July 24, 2013.  US Steel has the highest default probabilities of any firm analyzed in this series of credit notes to date. Trading volume in US Steel bonds on July 24 totaled $33.74 million. Assuming the same recovery rate in the event of default on all bond issues, a sophisticated investor who has moved beyond legacy ratings seeks to maximize revenue per basis point of default risk from each incremental investment, subject to risk limits on macro-factor exposure on a fully default-adjusted basis. We analyze the maturities where the credit spread/default probability ratio is highest for US Steel, and consider whether a reasonable investor would judge the firm to be “investment grade” under the June 2012 rules mandated by the Dodd-Frank Act of 2010.

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In this note we analyze the current levels and past history of default probabilities for Dell Inc. (DELL) and we compare those default probabilities to credit spreads on 292 bond trades in 8 different bond issues on July 22, 2013.  Trading volume in Dell Inc. bonds on that day totaled $37.3 million. Assuming the recovery rate in the event of default would be the same on all bond issues, a sophisticated investor who has moved beyond legacy ratings seeks to maximize revenue per basis point of default risk from each incremental investment, subject to risk limits on macro-factor exposure on a fully default-adjusted basis. We analyze the maturities where the credit spread/default probability ratio is highest for Dell Inc. We also consider whether or not a reasonable investor would judge the firm to be “investment grade” under the June 2012 rules mandated by the Dodd-Frank Act of 2010.

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In today’s note, we look at 155 weeks of single name credit default swap trading volume data since the week ended July 16, 2010 through June 28, 2013 for 1,144 reference names.  We continue to find minimal “end user” trade volume for the overwhelming majority of those reference names.

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