The phenomenon is spreading. If you can't price risk, can you feel confident that you know what you're buying?
http://www.bloomberg.com/news/articles/2015-11-15/debt-market-distortions-go-global-as-nothing-makes-sense-anymore"This is not really just a somewhat esoteric story about interest-rate derivatives,” “Moves in spreads should be viewed as symptomatic of deeper problems.” [Joshua Younger et al., JP Morgan Chase, Nov 6 report]
Another potential problem is that inverted swap spreads may ultimately cause investors and borrowers to lose confidence in the bond market’s ability to correctly price risk and provide capital to those who need it, [...] Demand for swaps, which has boomed in recent years as companies that issued fixed-rate bonds used the contracts to hedge away the risk of changing Treasury yields, also serve as benchmarks for a variety of debt, including mortgage-backed and auto-loan securities.
"The role of the bond market is to provide funding at the right rates for the real economy,” "That’s why the bond market exists -- to help efficiently finance projects, businesses etcetera. If that efficiency is undermined, it’s not going to be a positive thing for the economy.”
Whatever the reason, the severity of the distortions is unnerving many investors. “What there doesn’t appear to be is any single smoking gun that says why swap spread changes have been so dramatic,” said Thomas Urano, a money manager at Sage Advisory Services Ltd., which oversees $11 billion. The big question remains whether there is “something bigger brewing under the surface that so far hasn’t been pinpointed yet.”
