A very risky market

A high-stakes trade in the riskiest corner of a $1.3 trillion credit market is enticing the most conservative investors, raising concerns that—in their aggressive hunt for higher yields—they may be courting disaster. Pension plans and insurers have been piling into funds that invest in equity tranches of collateralized loan obligations in recent months. The inflows have helped a slew of hedge funds and other money managers raise at least $3.1 billion in less than a year for strategies solely dedicated to these investments. CLO equity—a small slice of the resurgent market for CLOs that bundle leveraged loans into bonds with varying safety ratings—is actually a form of deeply subordinated debt. It’s highly risky because it’s last in line to receive payments and the first to take any loss. Yet it has an appeal because of its greater claim to profits. While investors have typically included other hedge funds, family offices and sovereign wealth funds, the prospect of higher yields is now luring more money that’s been traditionally risk-averse. The recent increase in demand from pension funds adds a potentially large buyer to the mix. —David E. Rovella

The S&P 500 hovered near 5,220 on Friday as the index notched its third straight week of gains—the longest winning run since February. The Dow Jones Industrial Average rose for an eighth straight session. Still, there was some concern as a report showed US consumer sentiment declined to a six-month low as short-term inflation expectations picked up. It’s important to remember that consumer spending is the main pillar that has been holding up the economy, said Chris Zaccarelli at Independent Advisor Alliance. “Today’s lower-than-expected consumer sentiment numbers are a warning sign that the consumer shouldn’t be taken for granted,” he noted. “In addition, inflation expectations have been rising as well—which is a double whammy for the Fed.”

President Joe Biden’s top economic adviser pledged Democrats would push to reverse Donald Trump’s corporate tax cuts next year, setting up a battle with Republicans over a tax law with provisions slated to expire at the end of 2025. “It’s clear we need to end the 2017 tax breaks for the ultra-wealthy and scale back costly permanent corporate tax breaks,” White House National Economic Council Director Lael Brainard said Friday. “Our tax system currently asks much less of corporations than it used to.”

Nonbank mortgage companies, which increasingly dominate the sector, pose unique risks and vulnerabilities that can weaken financial stability, Treasury Secretary Janet Yellen said Friday. She previewed the Financial Stability Oversight Council’s first report assessing the threats introduced by nonbank mortgage firms, which have escaped the strong regulation reserved for traditional banks despite displacing them in the market. In 2022, nonbanks originated about two-thirds of mortgages and serviced most of them. Nonbanks rely more than traditional lenders on the value of mortgage servicing rights, and they can have high leverage, short-term funding and operational risks, she said. “Put simply, the vulnerabilities of nonbank mortgage companies can amplify shocks in the mortgage market and undermine financial stability,” Yellen said.

The final days of the prosecution’s case in Trump’s New York trial are upon us. On Friday, they included some potentially damaging evidence provided by Trump himself. Next week, one of the key government witnesses—former Trump lawyer Michael Cohen—is set to take the stand. The Republican presidential candidate faces a bevy of felony counts tied to the alleged falsification of records meant to hide payoffs. Those payoffs were in turn meant to keep embarrassing information from voters in 2016. While next week will see some of the state’s most critical evidence, Jason Leopold, Bloomberg’s Freedom of Information Act reporter, has a sneak peak for you. The FBI just sent him a set of documents directly related to Trump’s trial. They're business records from First Republic Bank, where Cohen opened an account to pay off adult film star Stormy Daniels. The details around the bank activity have been widely reported, but many of the underlying financial documents haven’t surfaced. And since cameras aren’t allowed in the courtroom, the public largely hasn’t seen the evidence at the center of the trial—until now. The Manhattan Trump trial increasingly looks like the only one voters will see before November. A Trump appointee in Florida and a group of Georgia state judges have likely delayed two of his four prosecutions beyond the election. And the fourth—the most serious—is in the hands of the US Supreme Court.

Ghana’s cedi is in a record-breaking weakening cycle. The currency hasn’t gained versus the dollar in the past 22 trading sessions, the longest streak going back to 1994. The cedi has declined 14% this year, a slump beaten only by currencies that have been devalued, including the Egyptian pound and Nigerian naira. The slide has been fueled by a slump in cocoa earnings, with exports dropping by nearly a third.

Harvard University slashed pay to its endowment chief in 2022, when the school reported its worst investment losses in six years. N.P. “Narv” Narvekar, chief executive of Harvard Management Co., was awarded about $1 million in base salary and $5.2 million in bonuses, according to the school. That represented a 6.9% cut from the year before.

A severe solar storm this weekend is threatening to trigger blackouts and disrupt navigation systems around the world. For the first time since January 2005, the US Space Weather Prediction Center has issued a G4 geomagnetic storm watch—the second-highest on a five-step scale—as multiple waves of solar energy bear down on the planet. “Severe levels are pretty extraordinary,” said Shawn Dahl, a US space weather forecaster.

It’s been independent for just under 60 years and is smaller than New York City. But make no mistake, Singapore is very much in the big leagues when it comes to money. The ascendant financial hub at the crossroads of global trade has in a relatively short period of time transformed itself from a colonial trading port to wealthiest nation in Asia. In the Bloomberg Originals mini-documentary How Singapore Got Rich, and Can It Last, we explain how this tiny island outpost moved deliberately from manufacturing powerhouse to financial services giant and now tourism and tech. In the process, it’s managed to boost its per capita GDP far above the UK, France and even the US. But as a new prime minister takes power for the first time in 20 years, clouds are forming on the horizon. The question now is how does Singapore maintain its winning streak?

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