Market graphic - The argument for short mezz/long index

Anticipating a sharp correction to spreads over the next few years, Andrew Feldstein, senior portfolio manager at BlueMountain Capital Management, puts forward a case for a short mezzanine tranche/long index position

Many market observers continue to note the stinginess of credit spreads and the compression of credit risk premia. But three years into the benign credit environment, others are beginning to question whether we have undergone some kind of secular change and have arrived at a new world where the global distribution of credit risk through structured products will permanently keep a tighter lid on credit spreads. We think not.

Yet the technical factors supporting credit spreads, and