German Factory Orders Rose Ahead of Trump's Tariff Announcements
German factory orders rose more than predicted in March, signaling improvement in the run-up to the US tariff announcements that have clouded the outlook for Europe's largest economy.
Demand increased 3.6% from February, beating the median 1.3% estimate in a Bloomberg survey. Without major orders, the gauge was up 0.5%, the statistics office said Wednesday.
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Yahoo
26 minutes ago
- Yahoo
Jim Chanos Sees Big Short in Saylor's Strategy, But Others Aren't So Sure
(Bloomberg) -- Buy Bitcoin, short Michael Saylor's Strategy. That's the latest call from legendary short-seller Jim Chanos, who sees the arbitrage play as a no-brainer. Others aren't so sure. ICE Moves to DNA-Test Families Targeted for Deportation with New Contract Next Stop: Rancho Cucamonga! The Global Struggle to Build Safer Cars US Housing Agency Vulnerable to Fraud After DOGE Cuts, Documents Warn NYC Residents Want Safer Streets, Cheaper Housing, Survey Says The trade has long been on the radar of Wall Street hedge funds, drawn to the premium Strategy's shares enjoy relative to the value of the company's Bitcoin holdings — a gap that topped 200% last year. The discrepancy stems from Saylor's self-styled Bitcoin treasury strategy, through which he has tapped capital markets to buy more and more of the world's biggest cryptocurrency, in turn attracting billions of dollars from retail investors. In the eyes of many arbitrage specialists, the yawning spread is unsustainable — in fact, it's already begun to narrow, but they see further opportunity to profit. 'I haven't seen an arbitrage like this in this size in years, years and years,' Chanos said during a recent interview on the Risk and Return podcast, referencing the trade he disclosed on CNBC in early May. It's one of a series of sophisticated trading strategies around the complex capital structure of Saylor's firm, formerly known as MicroStrategy, and the growing ecosystem of crypto investment vehicles. Some market players see parallels to the once-popular 'widow-maker' pair trade involving Bitcoin and the Grayscale Bitcoin Trust, but with fewer constraints. There are still risks involved, though. Chanos, known for his prescient bet against Enron Corp. 20 years ago, emphasized that his current favored trade isn't a wager against Bitcoin or Strategy, but rather a mirror of Saylor's own playbook: selling equity and raising capital to buy more digital assets. The core opportunity, he said, lies in the divergence between Strategy's market price and the company's Bitcoin-adjusted book value. 'The fact of the matter is, this is a Bitcoin holding company,' Chanos said on the podcast explaining the premium dislocation. Buying Strategy shares at their current price of around $400, he said, is effectively equivalent to buying Bitcoin at about two times its value — 'paying around $220,000 for Bitcoin that trades at $110,000. But the company is doing everything it can to close that spread, which is great — there's a catalyst.' A growing number of copycats have also started pursuing similar crypto-treasury strategies, further shifting supply-demand dynamics, Chanos added on the podcast. The investor didn't respond to a request for comment, nor did representatives for Strategy. On a basic level, the premium as measured by Strategy's market capitalization relative to its Bitcoin holding value stands at 70%, according to Bloomberg calculations. Taken a step further — adding in other dilutive securities the company has employed in its massive capital raising in the last year and removing the value of Strategy's legacy software business — and investors are paying a premium for the stock that's nearly double the value of the firm's Bitcoin holdings. If Bitcoin rises but Strategy's premium compresses — or if share dilution outpaces gains— Chanos' trade would turn a profit. Yet like any arbitrage, the spread may widen before it narrows, as seen in the GBTC trade around 2021. Premium Warranted? Some analysts and retail believers argue that a substantial premium in Saylor's firm is warranted, placing it in a unique category. First of all, Strategy offers investors exposure to a zero-fee Bitcoin vehicle, offering an edge over comparable exchange-traded funds. What's more, the company demonstrated an ability to use leverage to grow Bitcoin per share over time, an added value for investors buying the stock instead of the ETFs or underlying crypto, according to TD Cowen analyst Lance Vitanza, who believes Strategy's Bitcoin per share will increase by 26% this year. 'I expect MSTR will trade around its recent historical premium, either side of 100%, for the foreseeable future,' he said, referring to Strategy's ticker. Timing — when to enter and exit the wager— remains a key variable around returns, given the spread's ongoing volatility. In March 2024, Kerrisdale Capital Management promoted a similar pair trade in a letter titled 'Know When to HODL, Know When to FODL,' in a nod to crypto lingo. The firm still stands by its thesis, but 'I don't have the trade on now,' said founder Sahm Adrangi. 'When we put out the report, the premium was much higher and it made sense at that point. Is it going to zero? I don't really know,' he said, declining to specify when the firm closed the position. To Chanos and other fans of the trade, Strategy's ample market capitalization — now over $100 billion — and deep float make it relatively easy to maintain the short leg. For hedge funds, new borrows are being priced at a fee of 0.3 percentage point, according to data from S3 Partners. This helps to keep the cost of carry manageable while waiting for the spread to narrow. The inexpensive terms are likely to persist, given the stock's roughly 250 million free floating shares, and that only 11% is currently sold short, said Sam Pierson, director of research at the firm. But that doesn't eliminate the risk that the borrowing dynamics could change — potentially becoming more expensive and less stable, especially for individual investors, said Victor Haghani, chief investment officer of Elm Wealth and founding partner of Long Term Capital Management. There's a lot of demand for borrowing shares related to convertible arbitrage wagers and leveraged short ETFs, he added. Another source of uncertainty is the potential for an unexpected corporate event, such as a merger that might shift the company's fundamental business, complicating premium estimates and muddying the existing trade. 'Say if all of a sudden Strategy is part of something that is twice as big — then when you try to look at the valuation relative to the Bitcoin it holds, you can't really say that much anymore because now there's a business with revenues,' Haghani said. Still, he is confident of the spread's long-term convergence. 'My expectation is that in four or five years at the longest, the premium will be zero or even negative,'he said. 'I think this is a good trade, a good one possibly for hedge funds, but it's not one I'd want to put on in my personal account for the risks involved and my disadvantaged position relative to hedge funds in running the trade.' --With assistance from Tom Contiliano. Cavs Owner Dan Gilbert Wants to Donate His Billions—and Walk Again YouTube Is Swallowing TV Whole, and It's Coming for the Sitcom Millions of Americans Are Obsessed With This Japanese Barbecue Sauce Is Elon Musk's Political Capital Spent? Trump Considers Deporting Migrants to Rwanda After the UK Decides Not To ©2025 Bloomberg L.P.
Yahoo
40 minutes ago
- Yahoo
Wall Street Securitizes More Home Equity as Homeowners Get Stuck
(Bloomberg) -- Wall Street is cranking up the bond machine as US homeowners — finding that buying a new house is out of reach after mortgage rates started climbing in 2022 – are instead getting home equity loans and sprucing up their current properties. ICE Moves to DNA-Test Families Targeted for Deportation with New Contract Next Stop: Rancho Cucamonga! The Global Struggle to Build Safer Cars US Housing Agency Vulnerable to Fraud After DOGE Cuts, Documents Warn NYC Residents Want Safer Streets, Cheaper Housing, Survey Says Roughly $18 billion of bonds, backed by consumer loans on everything from second mortgages to loans that get repaid from future home value, were issued last year, according to data compiled by Deutsche Bank AG and Bloomberg. That's triple the amount in the year prior, and sales are on pace for a similar level in 2025. Buying a new house now can mean giving up a 30-year mortgage with a 2.75% rate and taking on a new one that's closer to 7%, effectively making buying a home much more expensive. Instead, many households are staying put and dipping into their home equity to pay for renovations and other purchases. There's a near record $35 trillion of that equity to tap into. Lenders are paying attention. 'They're taking their mortgage-making factories and starting to use them to create home equity products,' said Gabe Rivera, co-head of securitized products at PGIM. Investment firms are scooping up the loans and then repackaging hundreds or thousands of them at a time into bonds of varying size and risk, a process known as securitization. This year, Atlanta-based Angel Oak Capital Advisors and New York's Annaly Capital Management Inc. both issued their first-ever bonds secured by home equity lines of credit. In April, mortgage servicing giant Mr. Cooper Group Inc. joined the growing ranks with its first bond backed by second mortgages. Home equity-backed bonds are still a relatively small corner of the market, at least compared with the vast bond offerings for mortgages guaranteed by the quasi-government entities Fannie Mae, Freddie Mac and their sister organization Ginnie Mae. Together, the trio are expected to crank out some $1.15 trillion of MBS this year alone, according to Citigroup Inc. estimates. Still, the field is growing. TPG Angelo Gordon estimates there's a $2 trillion market for home equity products. And thanks to tighter lending standards and regulations, the debt also appears safer than in the 2008 financial crisis, when many borrowers in riskier loans fell into foreclosure. That's piqued the interest of big investors, including private credit firms, which are deploying other strategies to scale up access to home equity. One method is to agree to purchase substantially all of the loans that mortgage lenders write, even ones that haven't yet been made, as long as each fits certain criteria. Those arrangements are known as 'forward flow' agreements. Despite the growth in direct lending, the public securities markets often represent the largest and most liquid source of capital to fund such deals. Cashing Out To homeowners, the vast difference between the rate on their current mortgage and what they'd get with a new mortgage poses a problem. Before, when a consumer wanted to convert some home equity into cash, they could simply replace their existing mortgage with a new bigger one in a cash-out refinancing. But with mortgage rates still high, that no longer makes sense. Instead, homeowners are using either a home equity line of credit, which is a revolving credit line akin to a credit card, or they can take out a second mortgage. Both achieve a similar purpose: convert home equity into an up-front cash advance, without jeopardizing the existing mortgage. 'Home equity products are designed to let homeowners take cash out against their house while keeping in place senior mortgages with below-market coupons,' said PGIM's Rivera. Riskier Bets Use of a newer solution, home equity investment, or HEI, contracts more than tripled last year. They work by giving a homeowners an up front cash payment, in exchange for which borrowers agree to give lenders some of their future home equity. HEI contracts are often used by borrowers with somewhat lower credit scores than those who borrow against their existing equity or take out second lien mortgages, and are often used to consolidate debt or pay for remodeling and home renovation projects, according to DBRS. Some investors caution that HEI contracts resemble mortgage products with adjustable interest rates from the early 2000s, which ended up delivering losses to investors. 'Investors considering bonds backed by these contracts should carefully scrutinize them,' said Michael Hislop, an analyst at Curasset Capital Management. 'What kinds of borrowers are going to find HEI the most attractive? Ones without money to make mortgage payments.' DBRS said defaults of HEI contracts have been relatively rare so far, according to its 2024 report. Stable Market By and large, securitizations of home equity have performed relatively well in recent years. Lending volume for home equity-related debt is far below the years leading up to the housing bubble bursting nearly two decades ago. Industry insiders say that consumer housing reforms made after the subprime housing bubble of the early 2000s have purged most of the riskier borrowers from the market and that structural housing shortages are keeping upward pressure on home prices. Even so, there are dangers. The good performance has coincided with a period of strong housing price growth and low unemployment. If home prices were to enter a sustained decline, pressures could emerge, according to Ryan Singer, head of residential credit at Balbec Capital. 'It's true that there are trillions of dollars in home equity,' said Singer. 'But if you look at the individual mortgages, you can actually see that borrowers are making very small down payments on average, and that there are plenty of people with no equity in their homes.' Still, as long as interest rates remain elevated homeowners will continue to look for alternative ways to borrow. And with plenty of specialist companies tapping into structured debt markets for the first time, Wall Street's bond machine will keep humming. 'There are a number of ways for institutional investors to get exposure to home equity loans,' said Charles Sorrentino, head of investments at Rithm Capital Corp. 'But securitization is one of the most efficient.' (Updates with quote in final paragraph.) Cavs Owner Dan Gilbert Wants to Donate His Billions—and Walk Again YouTube Is Swallowing TV Whole, and It's Coming for the Sitcom Millions of Americans Are Obsessed With This Japanese Barbecue Sauce Is Elon Musk's Political Capital Spent? Trump Considers Deporting Migrants to Rwanda After the UK Decides Not To ©2025 Bloomberg L.P. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
an hour ago
- Yahoo
Delta Air Lines Plans Bond Sale to Repay Pandemic Payroll Loan
(Bloomberg) -- Delta Air Lines Inc. is planning to sell investment-grade bonds Thursday to help repay a government loan it took out during the pandemic to pay employees. ICE Moves to DNA-Test Families Targeted for Deportation with New Contract The Global Struggle to Build Safer Cars NYC Residents Want Safer Streets, Cheaper Housing, Survey Says The Buffalo Architect Fighting for Women in Design US Housing Agency Vulnerable to Fraud After DOGE Cuts, Documents Warn The airline is marketing three-year and five-year notes, according to a person with knowledge of the deal. Initial price discussions for the longer portion are in the area of 1.6 percentage point over Treasuries, the person said, asking not to be identified disclosing private details. The bonds will help the Atlanta-based carrier repay the US government for a loan it took out in 2020 through a program that was established through the CARES Act and that allowed airlines, whose sales plummeted during the pandemic, to borrow money to pay their workers. The $1.6 billion loan, which is due in 2030, was the largest of the three that Delta received through the Payroll Support Program, according to a filing. The facility had been accumulating at a 1% interest rate until April, when it switched to a floating rate structure with an interest rate of two percentage points above the Secured Overnight Financing Rate. The remaining loans Delta has from the government mature a year later than the one it's refinancing now, and their interest rate won't change until next year, according to Fitch Ratings. Delta's bond sale is among four in the US high-grade market Thursday, with others including Target Corp, First National of Nebraska and the homebuilding company Toll Brothers. Companies are seeking to meet their borrowing needs while funding levels remain attractive — high-grade yields dropped to their lowest since April on Wednesday. Delta's notes are expected to be rated Baa2 by Moody's Ratings and BBB- by both S&P Global Ratings and Fitch Ratings. Barclays Plc, JPMorgan Chase & Co., Morgan Stanley, U.S. Bancorp, and Wells Fargo & Co. are bookrunners for the transaction. Issuer Profile Debt distribution: DAL US Equity DDIS Capital structure: DAL US Equity CAST Related securities: DAL US Equity RELS Ratings history: DAL US Equity CRPR This story was produced with the assistance of Bloomberg Automation --With assistance from Brian Smith. (Adds context on loan program and Thursday's bond sales throughout.) Cavs Owner Dan Gilbert Wants to Donate His Billions—and Walk Again YouTube Is Swallowing TV Whole, and It's Coming for the Sitcom Millions of Americans Are Obsessed With This Japanese Barbecue Sauce Is Elon Musk's Political Capital Spent? Trump Considers Deporting Migrants to Rwanda After the UK Decides Not To ©2025 Bloomberg L.P. Sign in to access your portfolio
