The default of $Blackstone Group LP(BX)$ Nordic commercial mortgage-backed securities (CMBS) has attracted market attention last week.
According to Reuters, the bond, which was underwritten by Citigroup and Morgan Stanley, was originally secured against 63 mostly office buildings in Finland. But Blackstone had sold off about 16 buildings to pay down nearly half of the note, which now has an outstanding balance of 297.1 million euros, according to Fitch Ratings.
Reminiscent of last year’s shock to the global financial system caused by the British LDI, the logic behind these seemingly isolated risk events is that the speed and magnitude of this round of interest rate hikes hit a record 40%. The most in the remaining years, and may remain "higher for longer".
Over the past 10 years, the stability of the banking system has been significantly enhanced, and its vulnerability has been significantly reduced, but the proportion of non-bank financial institutions has increased significantly. Moreover, its individual volume is small, it is responsible for its own profits and losses, and it mainly manages the assets of entities with high risk tolerance. Therefore, the regulatory standards are looser, and the problems of liquidity mismatch and high leverage are more hidden.
US Government Debt to GDP reached 129% in 2022
In the financial ecology built on the previous low interest rates and low volatility, potential "minefields" may appear in:
1) high leverage, long duration, and poor liquidity;
2) based on the historical correlation of asset prices;
3) convergent Investment strategies are similar to management models, etc.
These products and formats include but are not limited to real estate, private equity investment, highly leveraged bond investment (especially emerging market bonds), stock and bond risk hedging strategies, some high-frequency trading strategies, arbitrage transactions with bonds as collateral, etc.
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