I understand the concept of mortgage backed securities and collateralized mortgage obligation, but don't understand which tranche to invest in a collateralized mortgage obligation. Would you invest in a senior tranche that has a lower yield or another tranche that offers a higher yield when you expect interest rates and property prices to increase?

A collateralized mortgage obligation (CMO) refers to a type of mortgage-backed security that contains a pool of mortgages bundled together and sold as an investment.
You can know more about Bonds glossary and other investment information here - https://www.bondsindia.com/knowledege-centebondspedia.html

From my understanding they're both ways for investors to gain diversified exposure to types of credit. Are the cash flow structures the same through each type of security? If not, how does each differ from the other? Hopefully this isn't too many questions!

Thanks for the help!

I did tried to look them up on investopedia but couldn't comprehend.

Does anyone have good resources to learn how to value structured credit products like MBS, CLOs, other asset backed securities? I've found the Fabozzi stuff but looking for somewhat more detailed walk throughs so i can learn the basics. I would appreciate any resources that may help. Thank you.

I've been doing some reading on the Financial crisis in 2007-2008 and these two terms seems to be used interchangeably. I would just like to confirm how they differ and if so how they each contributed to the crisis.

Hello all you wonderful apes. I’m not the one to usually create a post like this as macroeconomic pictures can be very divisive. This post is meant to explain the large picture of what is happening on a macroeconomic scale for the US.
Note: this DD was originally posted on 4/25/2022 and deleted by me as I was posting from my phone and the level of quality was insufficient. It was edited for improved readability on 4/26/2022 by u/upsouth.

TLDR

The Federal Reserve cornered the bond market. It has announced QT essentially stating “I’m about to dump my holdings of US treasuries.”
Yields move inverse of bond prices. Wall Street is now front running the Fed by dumping their bonds at the top and sending yields up… before the Fed even steps in. This will push bond yields through the roof and cause a wave of defaults and a stock crash.
There is too much leverage in this everything bubble. It would make everyone default. The pump fake is this: the Fed is only peeling up rates in small increments now to drop them again when the market crashes. It will then swoop in once again with QE and put downward pressure on rates once again to try and stave off a nationwide default and print your money into the toilet. If the Fed was real about inflation, rates would be in the double digits as we speak.

Part 1

1.1 The Central Bank and the Currency Crisis
Currently we sit at a crossroads in history. A currency crisis is upon us as reckless government spending and a central bank that answers to no one push us deeper and deeper into debt while financing it all with the printing press.
The issues start here: The Central Bank.

The Central Bank is a private institution with a monopoly over our money supply. At just a glance this institution seems to be under the thumb of congress and the public, but a brief look at their website states otherwise.

https://www.investopedia.com/terms/c/centralbank.asp

“International experience shows that monetary policy tends to be more effective in supporting stable prices and strong employment when it is shielded from short-term political influence, which is one reason the Congress has given the Federal Reserve considerable operational independence to set policy.”

https://www.federalreserve.gov/faqs/about_12798.htm
The Fed has full legal independence to set its own monetary policy with one caveat. As long as it says it is for the benefit of stable prices and full employment the Fed can do whatever it sees fit when it comes to setting policy. This gives them leeway as long as they state their goals match their legal obligations… and we’ll all know bankers never… EVER…bend the truth…
When it comes to transparency of their goals, they conveniently have a FAQ explaining their actions all while the motive remains a constant.

Question:

“Federal Open Market Committee (FOMC) meetings are not open to the public, so how do I know what the FOMC is doing?”

Answer:

Information about the Federal Open Market Committee's (FOMC) deliberations and decisions can be found in:

Policy statements released after each FOMC meeting;

Detailed minutes of FOMC meetings, released three weeks after each regularly scheduled meeting;

The Chair's press conferences;

Quarterly publication of the economic projections of FOMC participants;

Semiannual and other testimony by the Chair to the Congress on monetary policy;

Weekly disclosure of the Federal Reserve's balance sheet and discount window lending.

https://www.federalreserve.gov/faqs/federal-open-market-committee-fomc-not-public.htm
Their answer is a bit of a runaround. The actions are transparent, but their actual goals are no where to be found because the answer always remains the same, stable prices and full employment. The questions we should be asking are HOW is the central bank using these tools if its legal obligations are not being met, and what might otherwise be it’s unstated goals.
1.2 Refresher on Basic Economics in Ape Speak
To get a full understanding this let’s get some basic economics out of the way.
Fiat currency: “A type of money that is not backed by any commodity such as gold or silver, typically declared by a decree from the government to be legal tender.”
-Ape speak: It’s just paper.
https://en.wikipedia.org/wiki/Fiat_money?wprov=sfti1
Floating exchange rate: “A floating exchange rate is a regime where the currency price of a nation is set by the forex market based on supply and demand relative to other currencies.”
-Ape speak: The value of a floating currency is dependent upon supply and demand. Meaning increasing supply can lower its value relative to demand and decreasing supply can increase its value relative to demand.
https://www.investopedia.com/terms/f/floatingexchangerate.asp
Federal Funds Rate (FFR): “the interest rate at which depository institutions (banks and credit unions) lend reserve balances to other depository institutions overnight on an uncollateralized basis.”
Bond: In finance, a bond is a type of security under which the issuer (debtor) owes the holder (creditor) a debt and is obliged – depending on the terms – to repay the principal (i.e., amount borrowed) of the bond at the maturity date as well as interest (called the coupon) over a specified amount of time.
-Ape speak: It’s debt, loan with interest, etc.
Pristine collateral: “Securities that offer a risk-free return.”
-Ape speak: Assets that have little to no risk of default. Typically, US government treasuries are considered Pristine Collateral.
Benchmark Bonds: “A benchmark bond is a bond that provides a standard against which the performance of other bonds can be measured.”
-Ape speak: Pristine collateral, US Treasuries, US debt, that all other debt derives it’s risk assessment from. Example: If 30-year US bond has a coupon of 2% and is supposedly carries no risk (pristine), 30-year mortgages using US30Y as a benchmark must be higher than 2% interest as the mortgage carries more risk.
Coupon (bonds): “A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity.”
-Ape speak: The annual interest rate of a bond.
Yield (bonds): “The return an investor realizes on a bond.”
-Ape speak: The payment received from the interest made on the bond. Example: 100$ bond with a 5% coupon would have a yield of 5$
US Treasuries and how they function:
Uncle Sam issues a bond asking for 100$ with a 5% coupon. Over the life of the loan Uncle Sam has agreed to pay you 5$ every year for lending him 100$ (100 x .05). Your bonds yield is thus 5% or 5$. This coupon of 5$ remains the same over the life of the bond no matter what it trades at later.
Now US Treasuries are marketable securities, meaning you can trade them after auction. When they are traded, they can fetch a different price than the original price at auction. This is how bond yields start to change.
If the treasury mentioned above originally auctioned for 100$ with a 5% coupon starts trading at 80$ later in the secondary market and the coupon payment of 5% on 100$ (5$) stays the same, the yield increases (5 / 80 = .0625) or 6.25%. If the price increases to 120$ (5 / 125 = .04) the yield drops to 4%. These are the basic mechanisms behind yields on US treasuries, and why it is understood that yields move inversely to price.
1.3 The 1987 Crash and the Greenspan Put
Let’s start with the lead up to and the crash of Black Monday in 1987.
When Richard Nixon was president he took the United States off the Dollar-Gold Standard. During his time as president his bluff was called by the international players after the Bretton Woods system stated you could redeem 1oz. of gold for 35$. The international community saw the inflation under Nixon and deemed that he was printing more money than could be redeemed in gold. There was a run on the dollar and Nixon was forced to show his hand and detach the dollar from gold standard. This turned the dollar into a fiat floating currency. The panic further pushed up inflation throughout the 70’s. Asset prices followed as the new money entered the stock market and pushed up prices. This happened until the ferocious steps taken by Fed chair Paul Volker were enacted. His response is now known as the Volker shock.
Volker Shock
Bretton Woods
The early 1980’s was a rough time in America. The response to the double-digit inflation prompted a strong response from the Fed to raise interest rates past 20%. This sent the US into a Fed induced recession leading to a much stronger dollar and a growing trade deficit. The strong dollar benefited the domestic market as imports picked up and exports shrank when it became cheaper for the US to purchase internationally and more expensive for trade partners to purchase from the US. The policies of the Fed had worked to stave off inflation throughout the first few years of the 1980s.
With inflation worries gone, it was now the job of Ronald Regan and Paul Volker to correct the trade deficit it had with some of its trading partners. The Plaza Accord was introduced in 1985 to solve this issue. The main goal of this agreement was to depreciate the US dollar to correct trade imbalances between the G-5 countries. This was achieved by depreciating the dollar by having the Central Bank print and sell some USD on the international market while having its trade partners tighten. This would push the value of the dollar downwards and help exports pick up by making US goods more affordable internationally. With the increase in supply of the dollar due to the Plaza Accord, some of that hot money spilled over into the equities market.
Plaza Accord
The stock market boomed.
The Plaza Accord was successful in depreciating the dollar, a little too well. The US met back with its trading partners in 1987 to discuss how to stabilize its currency as its value continued to drop. This led to The Louvre Accord. This agreement was signed by Japan, Canada, UK, France, and Germany to slash interest rates while the US would raise interest rates to prevent further depreciation of the US dollar. Germany back pedaled. Fearing the threat of inflation, Germany reversed course and raised interest rates much to the dismay of the US. As a result, fear of the US having to take a much stronger action to strengthen its currency by raising rates higher and much faster than previously expected to keep up with its German counterparts sent markets tumbling. This became what we know now as Black Monday.
Black Monday
Louvre Accord
Fortunately, a couple months earlier the Fed received a new Chairman, Alan Greenspan. The stock market crash elicited a loving response from the Fed and the introduction of the Greenspan Put.
Greenspan Put
How the Greenspan Put (now Fed Put) works. This is where understanding bonds also comes in. The Central Bank does the following:

First, It the central bank can lower reserve requirements on banks to allow them to lend much more easily. As they can have much less cash on hand compared to the cash lent out.
Second, the Central Bank can lower the FFR (Federal Funds Rate, see above in definitions).
Third, the Central Bank can enact QE (Quantitative Easing) Indirect QE - 'Repurchase agreements (also called. 'repos') are a form of indirect quantitative easing, whereby the Fed prints the new money, but unlike direct quantitative easing, the Fed does not buy the assets for its own balance sheet, but instead lends the new money to investment banks who themselves purchase the assets. Repos allow the investment banks to make both capital gains on the assets purchased (to the extent the banks can sell the assets to the private markets at higher prices), but also the economic carry, being the annual dividend or coupon from the asset, less the interest cost of the repo.

This was now the point when Wallstreet got the green light to turn the stock market into the casino you know today. What the Greenspan Put basically stated to the banks was that if the banks wanted to put all their money on black at the roulette table, they could keep the money if they win and have the Fed print more money for them if they lose. The Fed has now taken the "Free" out of our free markets as this policy guarantees a bailout for the banks if anything goes wrong.
The result: this response from the FED fueled the massive speculative bubbles we have seen over the past 40 years.

There's quite a few folks that are still on the edge about direct registering their shares. I hope to shed some light on the risks associated in keeping your assets in a (un)trusted custodian, like a bank or brokerage institution. In this post, I plan to cover the following topics:

The origin of FDIC coverage
Parallels with the Crypto meltdown
SIPC coverage of brokerage accounts (or lack thereof)
Extra: FDIC deposit sweeps (specific to Fidelity)
Your options to take control of your own assets

Note: None of the topics mentioned within this post or my account history are intended as financial advice. Do your own research and come to your own conclusions. These thoughts are mine alone and are not representative of any person, group, or institution other than myself, pewpewstonks420x69.

1. Why We Have FDIC Insurance Today

We've all seen it - any bank out there has "member FDIC" written on all their signs and spoken in their commercials. The FDIC is an official government body (this is important) funded by the US government to insure all bank accounts up to $250,000 in case of a bank default. There is a similar institution in place for credit unions called the NCUA created in 1970 by congress.
The origin of the FDIC comes from way back during the Great Depression. In 1929 during the stock market crash, about 650 banks collapsed - another 650+ would fail the next year. Over the course of the Great Depression, 9,000 banks failed, losing depositors $7 billion dollars. That's about $195 billion dollars in today's money.
Congress rushed to implement a regulatory fix, and it was proposed in the Banking Act of 1933 - known as the Glass-Steagall Act. In this act, the FDIC was created to insure accounts up to $2,500, then $5,000, then kept being raised throughout the years until today's current limit of $250,000.
Another important aspect of the Glass-Steagall Act is that it limited the securities banks could purchase with deposits effectively to government Treasury Bonds, and nothing else:
https://www.federalreservehistory.org/essays/glass-steagall-act
This separation of commercial and investment banking was removed by the Financial Services Modernization Act of 1999, also called the Gramm-Leach-Bliley Act, effectively allowing banks to gamble consumer deposits on the stock market with equities, debt instruments, and risky derivatives again for the first time since 1933, as long as they kept some form of partial reserve. This act is widely blamed for causing the 2008 GFC - which prompted creation of the Dodd-Frank Act in 2010, which was supposed to reinstate some of the restrictions created in 1933. My opinion: the Dodd-Frank act was all just a big pony show to say "Hey look at us we're doing something!" There's hardly anything of concrete value in it.
https://www.investopedia.com/terms/f/financial-services-act-of-1999.asp

2. Parallels with the Crypto World's Meltdown of CEXs, post FTX

Just like FTX, BlockFi, and just about every other crypto exchange pre-FTX, stock brokerages have NEVER published their proof of reserves. There's not a shred of evidence out there that any brokerage owns the securities due their customers in full reserve. They could buy every stock 1:1, they could buy a 50% hedge and play with the rest, or they could just be taking all your money and playing hedge fund with it. There's of course, "regulation," ^{where's the mayo Kenny?!?} But NEVER!!! concrete evidence that a brokerage firm owns your assets. Even the regulators don't want to see evidence of positions (in this case by swap dealers).
For this, we can only equip our tinfoil and hypothesize about the potential risk and outcome. What convinced me of the worst was when Robinhood was issued a $3 billion margin call during the Jan '21 GME run-up. So either 1 of 2 things happened:

Robinhood internalized long stocks and call options via selling the option, trying to play Theta Gang and predicting they'd beat their clients
Robinhood straight up took their clients' money and wanted to go play hedge fund

Either way, those orders never hit the market. If they did, there'd have been no margin call. Draw your own conclusions here, but I think it's very telling that crypto exchanges are publishing their reserves and liabilities before any brokerage institution.
At least the top banks are willing to admit they're leveraged upwards of 30 to 1 with a grand total of $200 trillion worth of derivatives liabilities on their balance sheets (Page 18, Table 13)
JPow salivating thinking about all the bailouts he's gonna give

3. The SIPC is (kind of) AIG part 2 - Electric Boogaloo

A quick history on AIG - they were, in the 2008 GFC, one of the providers of Credit Default Swaps. They essentially sold insurance for Collateralized Debt Obligations (CDOs, the infamous dog shit wrapped in cat shit mortgage bonds), providing a payout in case the CDOs went under. Shocker, they did, and guess who couldn't pay up? You guessed it, the insurance provider who didn't have the reserves they promised.
You may have noticed that financial institutions like brokerages have "SIPC Insured" plastered all over them like the banks have FDIC. "Your funds are insured!" they say. But to what extent? The US retirement market alone accounts for $37.2 Trillion, $7.3 Trillion of which comes directly from 401ks alone. Almost all of these funds would be held through brokerages. The SIPC should be absolutely loaded to insure these institutions. Right?
.. Right?
https://www.sipc.org/about-sipc/the-sipc-fund
They have $5 billion in cash equivalents and another $2.5 billion on tap through an LOC. Yes, this is with a B, and the above retirement accounts are with a T. And to boot, they're not backed by the US Government, meaning they don't get access to that lovely money printer via the Fed's Infinite QE purchasing treasury bonds.
https://www.sipc.org/for-investors/investor-faqs
They're short of their obligations by somewhere between 3 TO 5 ORDERS OF MAGNITUDE. This is the Wall Street way of saying "Sorry pal, here's 5 bucks for your troubles." The moment "dumb money" gets wise to the scam, the bank run that will ensue will DWARF the losses (recall: $195 billion in today's money) suffered from the bank defaults in the Great Depression. Also recall, we have not a shred of evidence they're holding any security for any of their clients.

4. FDIC Insured Deposit Sweeps (by Fidelity)

This is what got me going down this rabbit hole today. I love the convenience of doing my banking in the same place as most of my investments (sans my DRS'd beloved stonk), so I decided to see if my funds, held in Fidelity's FDIC insured deposit sweep, were actually held in my name. After all, during MOASS, it's likely that every brokerage in the US will go bankrupt, so I wanted to ensure that my FDIC cash accounts were not subject to their bankruptcy proceedings. So I decided to read the fine print for the FDIC insured deposit sweep program and, surprised Pikachu face:

Note: NFS is National Financial Services, a subsidiary company of Fidelity
Mmmmm tasty custodianship
Wrinkles required. I'm taking these legal processes to include bankruptcy proceedings, beyond just account freezes or criminal confiscations
Long story short, Fidelity owns your bank accounts too (held via the FDIC sweep program). All subject to confiscation and redistribution by the bankruptcy court.

5. Well Thanks for Spiking my Blood Pressure Bro. Now What Do I Do?

Most of the general public will be quick to yell "but muh regulashunnn!" When this giant pile of burning feces comes rocketing toward the markets, as they watch their pensions, 401ks, and other vehicles of life savings evaporate before their eyes.
The problem here is that there's human freakin' beings shoved into every nook and cranny of the markets' processes - which allows for corruption on a grand scale. This includes the numerous ~~bribes~~ fines paid for criminal activity on a ~~daily~~ one time basis.
So how do you protect yourself, since nobody else^{SEC, CFTC, DTCC, FINRA, NCSS, OCC} will do it for you? (shocker, right?)
Get your assets where someone else can't touch 'em.

US dollars: Maybe your crazy grandfather who stashed cash in every wall of his house wasn't so crazy after all. Anything left in any bank will be subject to the bank imploding (like exactly what happened to his parents in 1930) - and who the hell knows if the FDIC will have the funds to pay you back, or if the Fed will let the Federal government burn(This is why the CBDC pilot program happening right now is so terrifying). In all honesty though, the US dollar will likely collapse. Read peruvian_bull's Dollar Endgame DD series. It's amazing.
PHYSICAL precious metals: Gold and Silver. Not some silver ETF, even the physical-backed ones will leave you with nothing when your broker defaults. Besides, the big ETFs are all backed by futures contracts, which are leveraged 100:1 or 400:1 for gold and silver respectively. Note, gold and silver can and have previously been confiscated by the US government under penalty of law. Something to keep in mind in case you plan on stacking.
Cryptocurrencies(held in a cold wallet, of course): This is exactly why they exist, after all. Cryptos, specifically BTC (and others with similar deflationary traits), were explicitly designed to A. be completely non-custodial, meaning YOU hold YOUR OWN MONEY and nobody else can touch, gamble, steal, or seize it, no matter what (unless you willingly hand it over to ~~greedy Wall Street bank mobsters~~ Centralized/Custodial Exchanges) - and B. Deflationary, so the secret tax of inflation can never be leveraged against you by any governing body. Once again, read the Dollar Endgame series.
And last, but of course, not by any means the least......

DRS YOUR DAMN SHARES!

This applies to ALL companies you hold in a brokerage account! Anything left registered in your broker's name (which is everything you think you own) will be subject to forfeiture upon a brokerage default, let alone if they're even holding it at all.....
But most importantly, DRS our most beloved stonk, $GME.
DRS holds shares of a company under YOU DIRECTLY, rather than in "street name" registration for your broker under Cede & Co. Nobody has a damn clue (nor do they care) that you think you own those shares, unless you hold them your very self via DRS.

TL;DR:
BUY, HODL, DRS.

NOT YOUR NAME, NOT YOUR STONK

NOT YOUR STASH, NOT YOUR CASH

NOT YOUR KEYS, NOT YOUR CRYPTO

NO PILE O' SHINY, IT'S YOUR HINEY

https://news.gamestop.com/node/11011/html#204
2006 gamestop PROSPECTUS
it states You should refer to the prospectus supplement relating a particular series of debt securities for a description of the following terms of the debt securities offered thereby and by this prospectus:(and then way down it also has ):
if the debt securities will be issued in whole or in part in the form of a book-entry security as described in the section of this prospectus captioned “—Book-Entry Securities,” the depository we appointed or its nominee with respect to the debt securities and the circumstances under which the book-entry security may be registered for transfer or exchange or authenticated and delivered in the name of a person other than the depository or its nominee; and
so then of course i went through after turdfurg23 showed me this, and found in section "Book-Entry Securities"
it's kinda long.. but i'll paste it the relevant few paragraphs here..
https://preview.redd.it/g5hygxbstr0a1.png?width=1885&format=png&auto=webp&s=3f2cdfb3ecf3613e8144cfc61a4203db961288c1

if the dtc changes from equity securities depository, gme withdraws book entry shares, and then debt security certificates are then printed and delivered..
So my questions are, say they were going to kung pow the market implosion by going to blockchain,what other entity would be the equity securities depository?alsoIs this technically fully in effect even thought the prospectus was issued 2006?
I'm thinking mortgage-backed-securities carried through swaps were coming due and they were the risk to the debt security depository?
EDIT:** wrinkles must be gotten. 2 investopedia links for you, this is to add context to the ending questions, and to present my thinking on things.. https://www.investopedia.com/terms/d/debtsecurity.asp
Investopedia notes:
"Examples of debt securities include a government bond, corporate bond, certificate of deposit (CD), municipal bond, or preferred stock. Debt securities can also come in the form of collateralized securities, such as collateralized debt obligations (CDOs), collateralized mortgage obligations (CMOs), mortgage-backed securities issued by the Government National Mortgage Association (GNMA), and zero-coupon securities."
https://www.investopedia.com/ask/answers/040815/are-all-mortgage-backed-securities-mbs-also-collateralized-debt-obligations-cdo.asp investopedia notes :
" All CDOs are derivatives: Their value is derived from another underlying asset. These assets become the collateral if the loan defaults. One variation of CDO that can offer extremely high yields (but higher risk) to investors is the synthetic CDO. Unlike other CDOs, which typically invest in regular debt products such as bonds, mortgages, and loans, the synthetics generate income by investing in noncash derivatives such as credit default swaps (CDSs), options, and other contracts.
I arrived at the questions of if the dtc stopped providing services, who would it be, and WHY would that come about, which reminded me of the change to swaps from 2000 and then that reminded me of the 2003 and 2002 wamu and BofA positions I found last year. They were from 2003 , and they were tied to fed funds."
please try to read those 2 links. It's slightly complciated, but realized both of these instruments are under the DTC as depository for secuities.
okay. heres my thinking.
We know they have futures on the treasuries, as disclosed in the everything short. So, technically, the huge economic issues at the time of 2006, were the credit defualt swaps, then mortgage backed securities(commercial backed too) that I can remember.
Citigroup showed up in almost all "m3mestonks" and xrt in 06/2013,along with kenny being there by 12/2013.
If there was a 5 y swap agreement covering the MBS and if they covered those swaps at the end with another10y swap agreement.. then we got 2023.
i think our whole shindig is to cover the CDS and MBS bundled together. that would mean the bailout never closed those, they put them onto the treasuries, and shorted the stocks to create $ to cover the schemes of the MBS that places citgroup 2008 on treasuries, citigroup on our meme stocks and xrt 2013, and explains the time frame of 2023 being big boom
citigroup was directly into enron through these instruments, and credit default swaps were issued from citigroup in that endeavor.
I'm greatly trying to learn. I apprecaite all your inputs.
POWER THE PLAYERS
ASBT

https://i.redd.it/g4z0vido7r191.gif

The headline is the TLDR. You'll have to read this one. Sorry not sorry.

No, that headline is not pilot idea for a new TLC spin-off. Despite its slightly deceiving moniker that for some would drum up memories of guilty-pleasure television starring the likes of Matt Burch and Sonia Pizzaro, the repurchase market plays a vital role in our financial markets, as it is used for liquidity.
In this DD, we will endeavour to identify some rationale behind the reason for the massive gains the repo market has experienced of late.

https://preview.redd.it/bdh233np7r191.png?width=509&format=png&auto=webp&s=a210cb63849561f22f9e3d3cd519ebdd2c2071e1

Now, about that high score.

The NY Fed reported a record $2,044,658,000,000 in reverse repo transactions yesterday; a trend I would expect to continue.
Over the last year, the repo market has seen exponential growth in the overnight repo market, specifically. On May 21, 2021, the Fed reported reverse repo transactions of $369,046,000,000; which represents an increase of $1, 675,612,000,000, or 454.04% percent influx to the market.

For perspective, the below chart illustrates the steady incline seen by the reverse repo market over the past calendar year.

https://preview.redd.it/852r6hau7r191.png?width=870&format=png&auto=webp&s=bf320a62037c00e77eab8f1740fe42aab7994126

Something I find rather interesting about the surge in reverse repo numbers is the timing of repo market policy. In March of last year, a NY Fed policy implementation saw the daily per-counterparty limit jump $50 billion from $30 billion to $80 billion.

https://preview.redd.it/cos7ja5w7r191.png?width=491&format=png&auto=webp&s=d5ff7452addcb20a61b90713535d5068759b7d2a

Something else I find rather interesting about the surge in repo numbers is the timing of repo market policy.
In March of last year, a NY Fed policy implementation saw the daily per-counterparty limit jump a staggering $50 billion, from $30 billion to $80 billion.

https://preview.redd.it/kgws6va18r191.png?width=465&format=png&auto=webp&s=730ffa75f36cce591f2d35832a9c17ba754c5426

What is more interesting still is that just some 6 months later, 189 days to be exact, the NY Fed would go ahead and amend repo market policy yet again.
On September of last year, policy implementation saw the daily per-counterparty limit increase by an astronomical amount of $80 billion.
Now, you might be reading this and wondering what this market does and why this matters, so, without further ado, "let's dive in".

Let's review. What is a repurchase agreement?

Operated by the New York Fed's Open Market Trading Desk (aka "The Desk") and authorized by the Federal Open Market Committee, Repurchase Agreements--or as they have come to be lovingly known--"Repos", are a transaction that takes place between a primary dealer and counter-parties such as banks, money market funds, and government sponsored enterprises, such as the Fed.
In repo transactions, The New York Fed's Open Market Trading Desk purchases Treasury, debt or mortgage-backed securities (MSB's) from one of the aforementioned counter-parties, with the understanding that the underlying securities will be resold at a later date. In its simplest form, a repurchase agreement is essentially a loan.

What is an overnight reverse repurchase agreement?
Overnight Reverse Repurchase Agreements ("Reverse Repos", or "RRP) have been conducted daily overnight since 2013. The purpose of this overnight repo system is to help prevent fund rates from falling below a set target. This overnight repo system also serves as a supplement to The Fed's primary monetary policy for depository institutions in an effort to regulate short term interest rates.
Overnight Reverse Repo operations are generally conducted daily from 12:45 p.m. to 1:15 p.m. (Eastern Time). For each RRP, a counterparty is allowed to submit one proposition in a size not to exceed $160 billion.
Now, you may be reading this and also wondering what in the world a counterparty is, and that would be a reasonable line of thinking. As stated on the Federal Reserve Board of New York's website, the Role of Reverse Repo counterparties can be seen below.

https://preview.redd.it/h3kaicf38r191.png?width=506&format=png&auto=webp&s=99573715e1b8dab00d7e11ca6ab436b9727e009e

So, what do people even buy in this repo market, anyway?
Participants of the repo market exchange government treasuries (bonds) or mortgage-backed securities (MBS's) for cash.

But don't just take my word for it. What does the Depository Trust & Clearing Corporation (DTCC) have to say about repos? Before answering this, let's first discuss who the DTCC is and what they do. Established in 1999 to combine the functions of the Depository Trust Company (DTC) and the National Securities Clearing Corporation (NSCC)--a subsidiary of the DTCC--the DTCC provides clearing and settlement services for the financial markets, processing trillions of dollars in securities-based transactions on a daily basis.

Now that we know who DTCC is and the role they play in our financial markets, what do they say about the repo market?

"Reverse repurchase agreements are used by institutions to earn income on their excess cash reserves. When the securities are sold, the sellers simultaneously agree to repurchase the securities on a specified day at a given price, including interest calculated using a rate agreed upon at the time the sale takes place. The portion of the repo transaction when the security is sold is referred to as the 'start' leg, while the subsequent repurchase is called the 'close leg. The borrower, and therefore the person providing the collateral, is called the 'repo dealer'; the cash provider is called the 'reverse dealer' or 'lender.' Except for a forward start repo, the 'start leg' of the typical repo will settle as a normal transaction. The 'close leg' will be part of the netting process on the respective settlement date". (https://www.dtcc.com/clearing-services/ficc-gov/repo)

Now, a little about treasuries...
Treasury debt, or debt instruments, are government issued securities used to raise capital. Highly sought after, as they are considered "risk-free"--inasmuch as they are backed by the government--treasury debt can either be

Treasury Bills (or "T-Bills"), which are short term bonds that mature within a year
Treasury Notes (or "T-Notes"), which are bonds with a maturity date of 10 years or less, and
Treasury Bonds (or "T-Bonds"), which are long-term bonds that mature between 20-30 years

With market mechanics out of the way, we can now move on to the purpose of the market; or at least one function it serves, anyway.

And this brings us to our next topic; short selling

On the surface, the repo market seems innocent enough; a marketplace of buyer and seller, meeting daily to exchange goods and services. What's the harm in that, right? However, upon closer investigation of this economic machine--and its sometimes seedy underbelly--the intent of the repo market disguises what to some would be considered nefarious or malicious intent.

Wait! So we're talking about short selling now? Yes, briefly.

Short selling is an investment strategy "that speculates on the decline in a stock or other security's price", per Investopedia.
Investopedia goes on to say,
"In short selling, a position is opened by borrowing shares of a stock or other asset that the investor believes will decrease in value. The investor then sells these borrowed shares to buyers willing to pay the market price. Before the borrowed shares must be returned, the trader is betting that the price will continue to decline and they can purchase them at a lower cost. The risk of loss on a short sale is theoretically unlimited since the price of any asset can climb to infinity".

Put simply, short selling is taking a bet that a stock's price will go down.
This investment strategy is not without its risks, however. Because a short sale comes with establishing a position to the downside, the risk of loss is unlimited, in theory, because no one knows how high a stock's price can climb.

You've made it this far, now let's quickly recap

The reverse repo market is a venue of buyer and seller between the NY Fed and institutions to exchange treasuries and MBS's for cash; a lot
A large number of reverse repo transactions are focus on the trade of treasuries; specifically government bonds
The repo market has seen continued and exponential growth for the better part of a year; most recently exceeding $2 trillion in transactions in a single day
Short selling is a practice of betting against a stock, based on speculation that it will lose value, in an attempt to profit off of that loss

Okay, so why short selling? Great question

Let's take a look at the 2021 financial statement of an institution; a hedge fund to be more specific.

https://preview.redd.it/zt9oy9p68r191.png?width=953&format=png&auto=webp&s=01c45b1d9319b5b1c4cd308943978e01741ed57a

As we can see by the highlighted text, this particular fund uses the repo and reverse repo market to acquire securities to cover short positions and settle other obligations.
In the process of covering a short, an entity--a hedge fund, for example--goes to the open market to buy back the same stock [ticker] that they sold short into the market on their speculation of the stock's price dropping, in order to close out a short position at a profit or loss; depending on the movement of the stock's price. When a short position is closed out, the borrower--the hedge fund, in our example--returns the borrowed shares to the lender. If they stock does down, they made money. Stock goes up, lose money. Seems simple enough, right?
Not always. When a short sale goes wrong, it can go very wrong. For many institutions, funds, or even retail investors, these short positions are established through the trading of derivative instruments--specifically, options--and often with massive leverage; be it 10:1, 100:1, 1000:1.

A derivative instrument is a contract between parties wherein the value of the contract is based upon--or derived from--the value of the underlying financial asset such as a security (a particular stock). Popular derivative instruments are calls and puts, which give the owner the right, not obligation, to buy or sell 100 shares of the underlying stock; a call would be buying, and a put selling, respectively. The difference of the two being a call option is taking a bullish position, where a put is bearish.
"Because short selling consists essentially of selling stocks that are borrowed and not owned, there are strict margin requirements. Margin is important, as the money is used for collateral on the short sale to better ensure that the borrowed shares will be returned to the lender in the future", says Investopedia.

Speaking of collateral, when we revisit the aforementioned 2021 financial statement of a hedge fund, we see that some $71.33 billion (yes, I said billion) has been pledged as collateral to counterparties to be sold or repledged to others.

https://preview.redd.it/ulrxw6488r191.png?width=732&format=png&auto=webp&s=21786f0dc47b673db386745401e4181d52faf860

And that's just one hedge fund. In 2021, Investopedia estimated the U.S. has some 3,635 hedge funds. I would expect this number have only increased since then.
(I do want to add that some funds are small, with only a few million in assets under management, while larger funds--like that from our financial statement--manages tens of billions in assets).

Looking further into the Collateralized Transactions section of this financial statement mentioned earlier, we get more insight; "the Company has rights of rehypothecation--the process of using assets that have been posted as collateral by clients for their own purposes--with respect to the securities collateral received under reverse repurchase agreements and the underlying securities received under securities borrowed transactions".

Okay, home stretch, here...

Institutions, funds, and individuals can establish a short position, often with leverage. In the case of hedge funds, based on information provided in their own financial statement, we know that these short positions are facilitated by way of derivative instruments. To mitigate credit risk, a hedge fund may enter into collateral arrangements with other counterparties such that, should another counterparty go bankrupt or fail to pay/perform, the hedge fund can essentially seize the collateral of that counterparty. (Pretty advantageous, if I say so, myself). We also know that hedge funds have billions set aside as collateral, and that through a process of using their client's pledged collateral as their own "with respect to.....reverse repurchase agreements", they participate in market activity.

To bring this all full circle, we know--again, based on a hedge fund's own financial statement--that they enter into repurchase and reverse repurchase agreements to cover short positions.

In short--no pun intended--a common practice is for hedge funds, with either millions or billions in assets under management to enter into short positions, where they based on their own speculation, bet against a particular stock; often with heavy leverage. When done to scale, this process requires large amounts of collateral "to ensure the borrowed shares will be returned to the lender."
However, in the event where a hedge fund (or institution) has established a short position that they now need to cover, the reverse repurchase market plays a key role, as it is used as a vehicle to create liquidity to "buy back" the shares previously borrowed to return.

And where does that liquidity come from? Treasuries (or bonds).

The below chart features the US Government Securities Liquidity Index. As government security liquidity dries up, the treasury market as a whole becomes more and more susceptible to volatility, or big shifts. This index measures the average yield error for notes and bonds maturing in at least a year.
On May 6 of this year, this very index saw its highest point of the year, to date; 1.65. The index is currently at 1.59
U.S. Government Liquidity Index

So, what does this mean? Tightening!

According to a May 4, 2022 press release from the Fed, we see that, pursuant to the Principles for Reducing the Size of the Federal Reserve's Balance Sheet that were issued in January 2022,
"

The Committee intends to reduce the Federal Reserve's securities holdings over time in a predictable manner primarily by adjusting the amounts reinvested of principal payments received from securities held in the System Open Market Account (SOMA). Beginning on June 1, principal payments from securities held in the SOMA will be reinvested to the extent that they exceed monthly caps.
For Treasury securities, the cap will initially be set at $30 billion per month and after three months will increase to $60 billion per month. The decline in holdings of Treasury securities under this monthly cap will include Treasury coupon securities and, to the extent that coupon maturities are less than the monthly cap, Treasury bills.
For agency debt and agency mortgage-backed securities, the cap will initially be set at $17.5 billion per month and after three months will increase to $35 billion per month.
Over time, the Committee intends to maintain securities holdings in amounts needed to implement monetary policy efficiently and effectively in its ample reserves regime.
To ensure a smooth transition, the Committee intends to slow and then stop the decline in the size of the balance sheet when reserve balances are somewhat above the level it judges to be consistent with ample reserves.
Once balance sheet runoff has ceased, reserve balances will likely continue to decline for a time, reflecting growth in other Federal Reserve liabilities, until the Committee judges that reserve balances are at an ample level.
Thereafter, the Committee will manage securities holdings as needed to maintain ample reserves over time.
The Committee is prepared to adjust any of the details of its approach to reducing the size of the balance sheet in light of economic and financial developments.

"
https://www.federalreserve.gov/newsevents/pressreleases/monetary20220504b.htm

In short, the Fed's mountain of treasuries will be greatly reduced.

Okay, so what does all of this mean?
In short--again, not to be punny--the measures being taken by the FOMC to curb inflation--quantitative tightening, or balance sheet normalization--will affect the reverse repo market. Because institutions and funds use the repo market to trade government securities (or bonds), their ability to cover short positions may be (severely) impacted, as this can greatly reduce their collateral and increase risk to their positions.
Should bonds be impacted enough, those institutions and funds currently betting against the stock market, bond market, housing market, and just about any other market possible... they're ability to continue doing so will be greatly reduced and/or hindered, if not snuffed out completely.

Reverse Repo is the key.

https://preview.redd.it/91gbkl3b8r191.png?width=358&format=png&auto=webp&s=f49347c1a22955afc53ce69500c78f5abcef095e

*Obligatory: I am not a financial advisor, and this is not financial advice. I have suffered at least 3 significant head injuries in my lifetime. Some of the information I am going to provide is speculative in nature but backed by data.
I have done my best to break this information down to a snot bubble blowing education level, but I needed to learn a lot of information to put this all together. Most items you may be unfamiliar with will have an ELI5 within the post to the best of my ability. *Long Post Warning
TL;DR
The Collateralized Loan Obligation (CLO) market exploded with activity this year, as has Citadel's (Shitadel) exposure as an obligor (debtoborrower) in the CLO market. CLOs are a form of Collateralized Debt Obligation (CDO). You know, the bad things from 2008. The banks are divvying up Shitadel’s leveraged loans (among many other corporate loans) and selling them to CLO Managers whose investors (other banks, hedge funds, insurance companies, mutual funds, ETFs, private funds, pension funds, etc.) invest in the loans through securitization. Securitization regarding a CLO is the pooling of 150-200 leveraged corporate loans into a single Asset Backed Security (ABS). This process reduces exposure to the banks who initiated the loan and allows them to remove most of the loan from their balance sheet… Good for them. Better yet, Banks aren’t even required to report their CLO information. Mutual funds, pension funds, and ETFs also are directly investing in portions of the loans themselves through syndication as well. Syndication is a loan being arranged by a group of lenders instead of one single lender.
~~In the event~~ When Shitadel defaults on these loans, the mutual funds, pension funds, ETFs, and other entities will be the ones left holding the bag… But, aren’t mutual funds and ETFs common investment strategies for individual investors and retirement funds? Yes, they certainly are. Anyone invested in those mutual funds and ETFs will share a proportional risk of the default.
So, the money that you, your mom, wife’s boyfriend, or retirement plan put into the effected mutual fund or ETF will be at risk to Shitadel’s loan defaults. “In 2020, an estimated 102.5 million individual investors owned mutual funds—and at year-end 2020, these investors held 89 percent of total mutual fund assets, directly or through retirement accounts.” [SOURCE]
We can only speculate at which funds hold CLOs containing Shitadel’s loans, BUT this post will include proof of how Shitadel’s loans are ending up directly in mutual funds and ETFs through syndication.
It appears the now nearly $1T CLO market, did not fare well during the mini market crash in March 2020. I wonder how it will do during the next financial crisis.

COLLATERALIZED LOAN OBLIGATIONS

Member wen Collateralized Debt Obligations (CDO) were responsible for a large part of the Great Recession? Now it’s time to investigate CDO’s ugly cousin, Collateralized Loan Obligations (CLO) and how Shitadel’s loans are involved in the market. CLOs are a type of CDO, but instead of all-encompassing debt or mortgage debt, they are composed primarily of leveraged corporate loans, usually for troubled businesses... “Despite their obvious resemblance to the villain of the last crash, CLOs have been praised by Federal Reserve Chair Jerome Powell and Treasury Secretary Steven Mnuchin for moving the risk of leveraged loans outside the banking system... So, what sort of debt do you find in a CLO? Fitch Ratings has estimated that as of April (2020), more than 67 percent of the 1,745 borrowers in its leveraged-loan database had a B rating. That might not sound bad, but B-rated debt is lousy debt.” The Looming Bank Collapse (Highly recommend reading this article, the author might have been early, but he won't be wrong)
Alex, give me “things that will fail” for $200, please: You can wrap a large amount (150-200) of leveraged BBB/BB/B rated corporate loans up into a single security and call it an investment-grade security because the chance of default of a large portion of loans is slim, unless you know, something happened to the market’s overall generally positive direction and loans started to default. Sound familiar? It should, because that’s what was happening with Mortgaged Backed Securities (MBS) prior to the crash in 2008. CLO Structure
Shitadel is currently given a BBB- credit rating by S&P Global Ratings. Some of their loans are being labeled as junk loans and securitized into a collateralized loan obligation where; insurance companies, banks, hedge funds, mutual funds, pension funds, private funds, ETFs, etc. invest in them. This typically happens because a company has maxed out their borrowing and can no longer sell bonds directly to investors, they no longer qualify for a traditional bank loan, or they are taking part in a leveraged buyout of a company through mergers and acquisitions. So, these loans are labeled as “leveraged loans” which carries a higher interest rate for the borrowedebtor and makes them enticing prospects for CLO managers because of the higher interest yield.
The same entities listed above also directly invest in Shitadel’s leveraged loans by becoming a syndicate of the loan. This is where a group of lenders get together to finance a loan. Instead of one financer of the loan, you have many, with each taking on a chunk of the loan. Later in this post I will include some NPORT filings for Mutual Funds and ETFs containing these loans. Do Shitadel’s lenders not want these shitty loans on their books?
https://preview.redd.it/jce7u2n3k6a81.jpg?width=640&format=pjpg&auto=webp&s=77f9122337f33cc0de9f754b06e5cb1da38e3c86
The positive piece for the banks regarding Shitadel’s loans being pushed into the CLO market is that even though the banks are the entities that initiated the loans, they have removed a lot of exposure to these loans when they fail because quite a bit of that exposure has been passed along to the CLO investors through the securitization process and through the syndication of the loans.
The question I continue to come back to is, what purpose does this derivative market serve? If the banks are the entities initiating the loan and the loan pays them well, why don't they want it?... IMO The reason this market exists and is exploding is because the banks have created a way to spread out the disaster when the market comes tumbling down... AGAIN. These securities are dog shit wrapped cat shit. It's a bunch of B/BB/BBB grade leveraged corporate loans lumped together to make a sausage of dog shit wrapped cat shit and call it an investment grade security, or individual bites in the case of syndicated loans. Stares at JPM:
https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/citadel-securities-allocates-3b-term-loan-for-refinancing-terms-62337677

CLO MARKET SIZE & CONDITION

CLO and Loan Market Review & Outlook: 3Q21 (voya.com)
The CLO market took a pretty significant dive in new issuances in Q1-2020, which is to be expected with the mini market crash in March, 2020, but it has rebounded to set multiple quarterly records for new issuances since that time. Pretty crazy how high it has jumped since the beginning of 2021… Almost as if, banks haven’t wanted these ~~assets~~ liabilities on their balance sheet since Q1-2021… Hmm. As of Q3-2021, Voya Investment Management had the CLO market sized to above $820B with anticipation of it hitting $850B by yearend 2021 (it is estimated that the CDO market was worth roughly $640B in 2007). I believe it is higher than this just based off the amount of CLO Funds being created at the end of 2021, See: https://www.dtcc.com/legal/important-notices
So, during an economic downturn, how would these CLOs fair? In April 2020 (after the mini crash of March 2020) the Federal Reserve announced that its $2.3T lending would include loans to CLOs:
https://preview.redd.it/697wfsyzl6a81.png?width=618&format=png&auto=webp&s=3befb7ba4b3dc1851e96735df1bae8926a9d4b91
Federal Reserve Board - Federal Reserve takes additional actions to provide up to $2.3 trillion in loans to support the economy
If the CLO market is strong and in good shape, why do the market participants need access to the lending facility? Did the economic downturn have negative effects on issued CLOs? Of course, it did. Publicly traded companies are smeared all over the CLO Obligor lists. If their share price deteriorates and the company begins losing money, it’s going to be tough to pay off all these loans.

CLO RISK

Not all CLO investors share the same risk. Securitization is the pooling of loans (Shitadel’s and others) into a single security. From there, entities can invest in the various tranches of the CLO. Think of tranches as levels within the CLO security. The senior tranche does not suffer losses until the lower tranches have been wiped out. Below the senior tranche are the mezzanine tranches, junior tranches, and the equity tranche. The equity tranche has the most risk, but also the most rewards should obligors continue to pay their loans off. The equity tranche suffers losses first, followed by the junior tranches, then the mezzanine tranches in the event underlying loans default. Insurance companies and financial institutions typically buy up the senior tranches. The junior (higher risk) tranche level is where mutual funds and ETFs typically invest. Mutual funds and ETFs are common types of retail funds, so, when Shitadel’s loans go belly up, guess who holds the bag on those loans?
https://preview.redd.it/zw4ip3ogm6a81.png?width=845&format=png&auto=webp&s=d9f907fc5b469ce28228cc264b54fa4511ce5fb6
I’ve read so many articles about how senior tranches in AAA-rated CLOs have never defaulted and why that makes these investment vehicles safe, but the problem I have with these articles is this:

The banks invested in the senior tranches of CLOs may be the safest, but if the market comes down and several loans begin to fail, even the banks will take losses,
The mutual funds (retirement funds) and ETFs have a higher degree of risk and those funds are primarily made up of regular people’s retirement, and when Shitadel’s loans start to fall, it will be the individual investors invested in those funds that take the initial hit,
They said the same thing about CDOs… And that didn’t go to well for CDOs in 2008, and
Quite a few of the articles written about how safe the CLO market is, are written by entities invested in these loans. Like Guggenheim, who’s given a proverbial buttload of money to Shitadel, as you’ll see.

MUTUAL FUNDS INVOLVEMENT

In 2020, The FED did a study on CLOs to find out who the main investors in the market were. Since data is so hard to come by for even the FED, they had to use 2018 data for their analysis. At that time, mutual funds accounted for 18.1% of CLO investments and roughly 1/3 of those funds were invested in mezzanine, junior, and equity tranches of the represented CLOs. My assumption is that these numbers have grown due to the overall growth of the CLO market and the number of NPORT-P, and previously used N-Q forms, that have been filed since 2018 (NPORTs are quarterly holdings reports for mutual funds and ETFs and N-Qs were bi-yearly until phased out completely in 2020).
These are the number of times N-Q/NPORTs containing the search phrase “Collateralized Loan Obligation” was mentioned from 2018 – 2021 (N-Q forms are extrapolated to meet the number of filings for NPORT-P filings):
https://preview.redd.it/ak9zuunjn6a81.png?width=527&format=png&auto=webp&s=6ded081146d785adeb1a13db5bbf84b4b71f6e9d
https://www.sec.gov/edgasearch/#/q=%2522Collateralized%2520Loan%2520Obligation%2522&dateRange=custom&category=custom&startdt=2020-01-01&enddt=2020-12-31&forms=NPORT-P
Speaking of hard to come by data, the Financial Stability Board did a report in 12/2019 indicating that they could not find the direct holders of 21% of leveraged loans and 14% of CLOs. That’s… umm… A lot of missing information.

SHITADEL’S INVOLVEMENT IN CLO MARKET

Shitadel has flown up the ranks of most referenced U.S. broadly syndicated collateralized loan obligors (making interest payments to the CLO investors from issued bonds/loans) and is currently the #2 obligor for the industry of “Capital Markets”, behind Brookfield Asset Management.
https://preview.redd.it/jcy18iv6o6a81.png?width=353&format=png&auto=webp&s=3d47201c8b8a6d21dce935e7ecb150711babab7c
You'll need to sign up for a free membership with S&P Global to access the source docs:
Top Obligors Q3-2020
Top Obligors Q4-2020
Top Obligors Q1-2021
Top Obligors Q2-2021
Top Obligors Q3-2021
Citadel Securities LP, which is one of Citadel’s entities, is the firm being used as the obligor to these loans.
Here’s the number of NPORTS and N-Q’s filed containing the search words “Citadel Securities LP”:
https://preview.redd.it/f5v7ne2zo6a81.png?width=449&format=png&auto=webp&s=67ea020a3e6322aff9cf3f16825addb225224c48
https://www.sec.gov/edgasearch/#/q=%2522Citadel%2520Securities%2520LP%2522&dateRange=custom&category=custom&startdt=2020-01-01&enddt=2020-12-31&forms=NPORT-P
I’ve evaluated A LOT of these funds and every one that I have looked at has contained Shitadel’s loan:
Citadel Securities LP Term Loan B 1L, (LIBOR USD 1-Month + 2.500%), 2.50%, 2/27/28 (the $3B loan that was refinanced, arranged by JPM)
I’ve also found you can search “Citadel Finance LLC” in the NPORTs to access mutual funds/ETFs invested in Shitadel’s “debt”. These are investments in the $600M Callable Senior Notes issued March, 2021.
In a market valued at nearly $1T, Shitadel is now the 38th most referenced obligor. Meaning, they have roughly the 38th highest amount of recurring interest payments on their loans. The only other “Capital Markets” industry participant who has flown up the ranks similarly, albeit not as dramatic to Shitadel is Jane Street Group, who was the 112th largest obligor at the end of Q3-2020 and is now the 55th largest (#3 for Capital Markets). In terms of buying leveraged loans directly through syndication, the Jane Street and Shitadel loans end up in a lot of the same mutual funds/ETFs.

NPORT FILINGS & SYNDICATED LEVERAGED LOANS

Mutual Funds, ETFs, etc. can directly invest in “leveraged loans” through syndication (where the loan is broken up and multiple lenders take on small pieces of the loans). We can actually see these loans within the fund’s holdings. Here’s a sampling of mutual funds/ETFs that filed NPORTS in 11/2021 carrying Shitadel’s loans:
https://preview.redd.it/3dhijlwep6a81.png?width=586&format=png&auto=webp&s=365ae4e50d5e209fb43a3c3e35739a5ba9f574d2
Funds typically have more than one class of investments so each class is represented as a different series. Here are some of the funds with their series included:
Franklin Floating Rate Master Trust

Franklin Floating Rate Income Fund (Mutual Fund)
Loan to Citadel Securities LP $3,243,450, maturity 2/2/2028

Guggenheim Funds Trust

Guggenheim Floating Rate Strategies Fund (Mutual Fund)
Loan to Citadel Securities LP, $4,477,500, maturity 2/2/2028

Highland Funds I

HIGHLAND/IBOXX SENIOR LOAN ETF (Ticker: SNLN) Actively traded ETF
Loan to Citadel Securities LP $598,496; maturity 2/28/2028

Franklin Templeton ETF Trust

Franklin Liberty Senior Loan ETF (Ticker: FLBL) Actively Traded ETF
Loan to Citadel Securities LP $1,442,750, maturity 2/2/2028

Franklin Investors Securities Trust

Franklin Floating Rate Daily Access Fund (Mutual Fund)
Loan to Citadel Securities LP, $4,278,500, maturity 2/2/2028

Virtus Opportunities Trust

Virtus Newfleet Senior Floating Rate Fund (Mutual Fund)
Loan to Citadel Securities LP, $1,946,347, maturity 2/2/2028

LIBOSOFR Transition

I’m not going to go into a lot of detail on the transition from LIBOR to SOFR rates, but what you should know is this, LIBOR was the benchmark interest rate for short-term loans, but due to recent scandals and questions around its validity, it is being phased out for SOFR. New issuance CLOs must use SOFR after 12/31/2021, and legacy accounts have until 6/30/23 to refinance using SOFR. The transition to SOFR for new issuances, and as others are refinanced, will not only be a kick in the nuts to the CLO Manager, but to the CLO obligor as well (Shitadel) because SOFR rates aren’t coming in nearly as cheap as easily manipulated LIBOR Rates were. The assumption is that Shitadel and other borrowers will do everything they can to avoid refinancing their CLO obligations until as late as possible as this interest increase will have an impact on the amount of $ they need to shell out to investors. LIBOR Deadline Prompts Surge in CLO Issuances

CRIME IN CLOs

CLO funds also have their fair share of crime occurring just like the rest of the financial market. This article from 2/4/2021 CIO Pleads Guilty to $100M CLO Fraud shows us how fraudulent this market can be. IIG’s CIO and managing partner plead guilty “to investment adviser fraud, securities fraud, and wire fraud in connection with more than a $100 million scheme to defraud the firm’s clients and investors.” According to the charges, David Hu and an unnamed co-conspirator “obtained approximately $220 million in bank financing to create a collateralized loan obligation trust, or CLO, for which IIG served as an investment adviser.”
“David Hu admitted to shirking his fiduciary responsibilities and defrauding IIG funds and investors for more than a decade, causing millions of dollars of losses,” Audrey Strauss, US Attorney for the Southern District of New York, said in a statement. “Hu mismarked millions of dollars of loan assets, falsified paperwork to create fake loans, sold overvalued and fake loans, and used the proceeds from those sales to pay off earlier investors, and falsified paperwork to deceive auditors and avoid scrutiny.”
Looks like the CLO market is just as deplorable as any other market. Sounds ‘bout right.

TOP CLO MANAGERS

This post is so long and I haven’t even gotten to the top CLO managers. Here’s some familiar faces:
https://preview.redd.it/3xlt5tluq6a81.png?width=637&format=png&auto=webp&s=809be6371aae612d4b676385a16846e109360455
https://www.cloresearch.co.uk/blog/us-clo-managers-aum/

FIN

I will be making a follow-up post to this with my speculative opinion on why Shitadel has climbed up the obligor leaderboard over the past year. I have some theories, but need more time to research. Feel free to beat me there!
The main purpose of this post was to point out Shitadel and many others’ corporate loans are being sold from banks (to reduce their exposure) and bought up directly by mutual funds, pension funds, ETFs through syndication and indirectly through the CLO market. When the stock market tumbles, this market will tumble too.
In the meantime, here’s a teaser: CLOs are often backed by corporate loans with low credit ratings or loans taken out by private equity firms to conduct leveraged buyouts through mergers or acquisitions... I wonder how many times Shitadel has filed an SC-13G form claiming beneficial ownership of acquisition companies. According to an Edgar full text search, this many times:
https://preview.redd.it/w4idclt6r6a81.png?width=450&format=png&auto=webp&s=5cb15960e19099c84dde72ee45c4d665fd90523a
https://www.sec.gov/edgasearch/#/q=acquisition&dateRange=custom&category=custom&ciks=0001423053&entityName=CITADEL%2520ADVISORS%2520LLC%2520(CIK%25200001423053)&startdt=2021-01-01&enddt=2022-01-07&forms=SC%252013G&startdt=2021-01-01&enddt=2022-01-07&forms=SC%252013G)
Wut doing Ken?
As always, Tanks fo’ reedin’
PS – DRS is the way.
EDIT 1: Spelling/grammar (the head injuries) - I see a formatting issue I don't like, but perfectly imperfect is a way of life.
EDIT 2: Added source link for $2.3T lending
EDIT 3: Added Citadel's name to the beginning of the post.

Binomo google play - aneg.timmatch.ru

Collateralized mortgage obligation (CMO) [Video Investopedia]

Collateralized Mortgage Obligation

What is collateralized mortgage obligation?

#hiring *MBS / Collateralized Mortgage Obligation (CMO) / MBS P&L Reporting Man*, New York City, *United States*, fulltime *Apply :* https://ift.tt/2YwxcGx #newyorkcity #unitedstates #jobs #jobseekers #recruiting #recruitment #usjobs

ELI5: How does a CLO (collateralized loan obligation) work and how is it different from a MBS (mortgage backed security)?

What is the best non-lethal punishment you would give to someone central to causing the sub-prime mortgage credit default swap derivative collateralized debt obligation clusterfest of 2008?

What is the difference between 1) a collateralized mortgage obligation (CMO), 2) a mortgage-backed security (MBS) and 3) a mortgage pass-through security?

What is the best non-lethal punishment you would give to someone central to causing the sub-prime mortgage credit default swap derivative collateralized debt obligation clusterfest of 2008?

Collateralized Mortgage Obligation (wikipedia)

ELI5: What are Mortgages and Collateralized Debt Obligations?

Looking for resources to value structured products (Mortgage Backed Securities, Collateralized Loan Obligations, Esoteric ABS...)