Merrill Lynch research analysts are increasingly focusing on trade ideas across asset classes as volatility increases in the marketplace, said Yaw Debrah, co-head of global equity-linked research. He explained the return of volatility to the market provides the opportunity for capital structure plays across the credit spectrum. "With the burgeoning hedge fund universe, which recently cracked $1 trillion in size, there's more demand for it as rarely do they just pick one asset class to invest in," Debrah said.
Merrill last week released a report covering the airline sector and Debrah said the capital structure pieces generally cover distressed and event-driven situations, which he believes will pick up in coming months. "We're in a situation where the [Federal Reserve] has been raising rates for over a year, the economy is slowing, the default rate will rise, spreads will widen, volatility will increase and risk will increase," he said. Debrah added: "My view is this is the direction of research." J.P. Morgan recently launched new research offering its own capital structure recommendations (BW, 5/30).
