Originally aired on Apr 7, 2023

Bill interviews Greg Foss about the recent events in the bond market and the warning signs of credit risk. Foss explains the role of credit default swap as an early warning signal for distress in the capital structure and how it predicts bank failures.

Highlights

• Credit leads everything and is a better indicator than equity
• Credit default swap is a sophisticated market that predicts distress in the capital structure
• Bank failures are caused by interest rate risk, not credit risk
• Risk spreads on credit default swaps indicate increasing insurance premiums against debt default
• Mismatched assets and liabilities cause undercapitalization in banks
• Banks are in a precarious position of leveraged enhanced losses
• Leveraged enhanced returns also risks leveraged enhanced losses.