A long time ago when I was working on Retail Investing at LendingHome, a resume came across my desk and it had a certain gravitas that I couldn’t quite put my finger on.
Rower at Princeton.
Studied Politics & Math.
Now: HY Credit Trader at Barclays.
HY Credit Trading. Wow, that sounds really prestigious. I know a little bit about finance and economics, but far from an expert. Did a little bit of googling, and soon found out that HY stands for High Yield.
Nice, so this guy is a High Yield credit trader. Sounds prestigious. Must be a natural born winner. A go-getter. Besides, it’s not like he’s trading low yield credit or something inferior like that.
I was about to go on my way until I remembered something that’s almost always true in finance: if it sounds too good to be true, it probably is.
So I thought through it down a little bit more.
High Yield credit means that the person who owes the debt obligation on the other side is probably paying a lot to borrow the money. Makes sense so far. Where else would those high yields come from? Not like it’s desirable to pay back a loan obligation where the yield is high.
So if someone is paying a lot to borrow money, there’s probably a reason why. Capital is a commodity and interest rates are basically zero. You’d have to be an idiot to take a high interest loan when you could do one for less. You’d basically be burning money.
A little bit more thinking.
So if you’re the kind of person who’s on the other side of a high yield credit product, you’re paying a lot to borrow a little bit of money. So that must mean your company has bad credit.
Or put differently, that you’re a shitty company.
Taking this discovery and zooming back out: HY credit is an aphorism for “high risk” credit, which is basically a nice way of saying “I’m a credit trader who mostly trades in piece of shit companies.”