AAA

sgrizzt

No big economic moment is ever quite the same. Great Recession was driven by a dangerous cocktail of greed, easy money, and major market failure (largely due to risk laundering in the bundling of adjustable rate mortgages). That was a pure numbers game — delinquencies hit a certain level, AAA assets become dogshit wrapped in catshit, if I recall the poetry of the Big Short. Right now is a different beast, and though there may very well be some pool of systemically important underpriced risk, I don’t know exactly where it’s hiding. Tariffs and layoffs push on the macroeconomy, which is bad for the market overall, but doesn’t necessarily trigger a systemic black swan unless and until an important threshold is hit (that most people won’t see until it’s in the rear view mirror—then it will be obvious). And so long as things aren’t going systemic, and people/firms have cash to play with, the stock market can keep rolling for a while, even if prices increasingly diverge from fundamentals, at least in the peaks of volatility cycles. On the flip side, lots of regular folks are and will continue to feel major economic pain, regardless of what’s happening in the markets, but so long as that pain isn’t systemic, it doesn’t become front page news. It’s the quiet misery and suffering of the growing ranks of the poor. There can be social tipping points on that end, which seems plausible if costs rise and business revenues fall in a static interest rate environment (though rates will probably fall if and when things start looking really bleak). But the social tipping points, again, are a different phenomenon from the type of market collapse we saw in 2008.

Academic_Wafer5293

2008 was caused by the blowup of CDS (credit default swaps) that were tied to mortgages that were securitized and rated AAA but were made up of mostly junk debt (subprime mortgages, NINJA loans) repackaged with geographic diversification and some prime mortgages to get AAA ratings from credit agencies. When the underlying asset stop cash flowing b/c people stopped paying their mortgages, the CDS went HUGELY in the money and institutions writing the CDS went under immediately. That triggered systemic panic b/c every major financial institution were writing these CDS as insurance policies. You gotta get the facts right if you want to make a comparison.

Willing-Tank5563

Insurance companies are massive, and auto insurance is heading in an AI direction. AAA has started using RDZN and it’s MASSIVELY undervalued right now. Definitely interesting to buy, up 7% today

timmyd79

RDR2 is such a superior investment play compared to GTA6 on the politics angle alone. Don’t forget how divided our country is for a game that will most obviously involve race, gender, law, and crime. This isn’t just a game anymore it’s an interactive movie and one that can fall flat compared to a western period piece that is mostly non-political. Combined with the quality bar that gets raised even if Rockstar has a good track record in that regard past performance doesn’t dictate future performance. Just like a game can come out and exceed expectations on small budget and dev team like Expedition 33, don’t kid yourself into thinking a AAA from the best of AAA developers can’t possibly face plant.

stackcheesesitds

Short the AAA tranche. Who's not gonna take that bet?

greenpride32

Actually gold accumulation has been occuring steadily for 2 years. It's not the tarrif war that spurred it - it was US debt rating downgrade from AAA to AA+ in 2023.

LURKER21D

cause we let the ratings companies get away with AAA to whatever they want. it's all fraud.

sf_cycle

I honestly can't believe games are still $59.99 for AAA. They were that price in the 90s. People expect them to be that price for the rest of time. So I don't know that finally increasing the price is an indicator of a doom and gloom bubble formation.

SegaSystem16C

Definitely. With Black Myth Wukong China proved they can stand alongside the other AAA western studios in producing quality games. The thing is, this will also affect japanese and korean games. Nintendo and Sega might find some loophole and say their games were made/published by their American branches.

plow47

Ive been looking at A,AA,AAA rated ones only

Ok_Net_1674

Not short term, no, but in the long run it would definitely. The US has a de-facto-monopoly on so many tech related things. If the US messes this position up, it would allow for more competition across the globe. This, in turn, can only be good for consumers. In particular, when it comes to video games, I also don't think a crash in the industry would hurt me a lot. Almost all good games I've recently played where indie games or from rather small companies. AAA titles kinda blow nowadays. (My opinion, I am sure not everyone has the same one.)

Similar-Topic-8544

Doctor here, bottom definitely dropping out faster than a patient’s BP after a ruptured AAA.

Willing-Tank5563

$RDZN is looking super interesting. More and more insurance companies are looking toward AI automation and that’s exactly what RDZN does in 4 countries and looking to expand. AAA already uses them here in the states to automate some of their insurance claims. See you there 🫡

paper_plains

Depends on the game. I look at it as a time cost analysis. If I get 100 hours out of a AAA game, that's $0.80 per hour entertainment value. What other forms of entertainment offer that sort of ROI? Like a movie ticket is $20 for a 2 hour movie - that's $10 an hour. Honestly, I'm shocked video games have consistently been around $60-$70 since the N64 back in the late 90s.

BearstromWanderer

AAA games usually buck that trend. It's the lesser advertised games and independent studio games that take a hit. Why spend you $60(80) dollars on an unknown when you know the next Madden, CoD, Rockstar or Naughty Dog game will slap?

KimJongUn_stoppable

What economic factors will lead to a severe recession this go around? In 2008, the entire world economy was directly or indirectly tied to the performance of mortgage backed securities. The MBS bonds themselves were misrepresented fraudulently. Ratings agencies falsely rated mortgage bonds to be AAA when in reality they were filled with predatory, high LTV, low quality loans. Consequently, when these bonds failed, the world’s wealth vanished and financial institutions collapsed. Fast forward to now. What is the problem? The mortgage market is overall healthy and not fraudulent enough to create economy wide issues. The problem is that the Fed printed too much money for the past 15 years. The result of too much money is at worst stagflation. That’s nowhere near as bad as 2008. You’re just dooming with this post. If anything the economy needs a reality check. It’s been propped up by government deficit spending and loose monetary policy. The can has been kicked and there should be some slow down, but to compare the modern day to 2008 is baseless.

Due_Toe_5677

Another reason not to put money in AAA CLO ETF's right now?

Spotty1957

MSTR offered bonds at 5% some time ago, the problem is bankruptcy on credit rating of AAA. Personally, I haven't seen BTC act like a currency. Michael keeps diluting the shares as he requested SEC to approve 18 billion in common shares, about 4 months ago. Fiat currency US dollar or BTC? I also don't see any hard assets? The wind has more control over the planet than investors over BTC.

Such_Region2724

a smackdown from the AAA (ABNB, AAPL, AMZN) AH would be wild 

scorchie

I'm of the growing opinion that MMs are manipulating it so there isn't a considerable drawdown, which would spook "normal" investors into cash. They can't allow this for a few reasons: 1. Panic selling triggers a crash. No institution was positioned for the 10% drop from initial tariffs—Jane St. had to take out a term loan last week. Now, bid/ask spreads on everything are insane—thousands on each side at every single price point. Every intraday "dip" over 40bps is immediately bought into a reversal. 1. On this point, realized vol > implied vol.... Does a negative GDP print, empty ports, mass layoffs, rising withdrawals from 401ks (all documented, Google), and absolute chaos about anything, even near or mid-term.... Does VIX @ 25 seem optimistic here? Those dip buyers look more concerned about keeping VIX low than their DCA, lmao. 1. There is a massive disconnect from basic data points, such as foreign capital having fled US markets by 15%+ over the past few weeks (Google, a lot of coverage). So, where is that capital outflow being reflected in prices? It isn't. The outflows are documented, but where is their market reflection? 1. Privates (equity, credit, real estate) are distressed due to rising default rates and forced liquidations by endowments. It's so bad that [APO/BX/CG/ARCC](https://www.bloomberg.com/news/articles/2025-04-30/apollo-carlyle-buy-first-srt-tied-to-loans-to-private-debt-bdcs) and [D.E. Shaw](https://www.bloomberg.com/news/articles/2025-05-01/d-e-shaw-raises-1-3-billion-for-fund-targeting-risk-transfers) are raising capital for SRTs. This can't possibly be interpreted as anything other than banks being in serious trouble. Are those car loans and credit card balances with record missed payments [starting to catch up](https://www.bloomberg.com/news/articles/2024-05-01/rent-the-balance-sheet-banks-seek-ways-to-skirt-capital-rules)? Meanwhile, DFS/COF at ATHs....k. 1. You have a syndicated leveraged loan market - private loans held @ 50:1 [leveraged CLOs](https://www.bloomberg.com/news/articles/2025-04-14/clo-market-poised-to-freeze-raising-risk-to-us-leveraged-loans), with a default rate of \~5.6% in Dec'24 (COVID low was \~4.4% for reference), showing further [record distress](https://www.bloomberg.com/news/articles/2025-04-14/clo-market-poised-to-freeze-raising-risk-to-us-leveraged-loans) in April. Managers of these assets “print and sprint” the non-securitized/warehouse secondaries they hold because AAA traded below 1:1. Totes normal. 1. It is not getting enough coverage, but [Endowments ](https://www.reuters.com/world/us/harvard-university-exploring-1-billion-private-equity-stakes-sale-bloomberg-news-2025-04-24/)are forced to sell PE holdings due to Trump's tax threats. This is not getting the coverage it deserves because it will force liquidity and price discovery events to cascade across the private markets. So the.... you'd think, bad news listed above.... not priced in? Absolutely none of it? OK... let me continue.

scorchie

Tin foil hat, I know... but here me out: I'm of the growing opinion that MMs are manipulating it so there isn't a considerable drawdown, which would spook "normal" investors into cash. They can't allow this for a few reasons: 1. Panic selling triggers a crash. No institution was positioned for the 10% drop from initial tariffs—Jane St. had to take out a term loan last week. Now, bid/ask spreads on everything are insane—thousands on each side at every single price point. Every intraday "dip" over 40bps is immediately bought into a reversal. 1. On this point, realized vol > implied vol.... Does a negative GDP print, empty ports, mass layoffs, rising withdrawals from 401ks (all documented, Google), and absolute chaos about anything, even near or mid-term.... Does VIX @ 25 seem optimistic here? Those dip buyers look more concerned about keeping VIX low than their DCA, lmao. 2. There is a huge disconnect from basic data points, such as foreign capital having fled US markets by 15%+ over the past few weeks (Google, a lot of coverage). So, where is that capital outflow being reflected in prices? It isn't. The outflows are documented, but the market reflection of them... where? 3. Privates (equity, credit, real estate) are distressed due to rising default rates and forced liquidations by endowments. It's so bad that [APO/BX/CG/ARCC](https://www.bloomberg.com/news/articles/2025-04-30/apollo-carlyle-buy-first-srt-tied-to-loans-to-private-debt-bdcs) and [D.E. Shaw](https://www.bloomberg.com/news/articles/2025-05-01/d-e-shaw-raises-1-3-billion-for-fund-targeting-risk-transfers) are raising capital for SRTs. This can't possibly be interpreted as anything other than banks being in serious trouble. Are those car loans and credit card balances with record missed payments [starting to catch up](https://www.bloomberg.com/news/articles/2024-05-01/rent-the-balance-sheet-banks-seek-ways-to-skirt-capital-rules)? Meanwhile, DFS/COF at ATHs....k. 4. You have a syndicated leveraged loan market - private loans held @ 50:1 [leveraged CLOs](https://www.bloomberg.com/news/articles/2025-04-14/clo-market-poised-to-freeze-raising-risk-to-us-leveraged-loans), with a default rate of \~5.6% in Dec'24 (COVID low was \~4.4% for reference), showing further [record distress](https://www.bloomberg.com/news/articles/2025-04-14/clo-market-poised-to-freeze-raising-risk-to-us-leveraged-loans) in April. Managers of these assets “print and sprint” the non-securitized/warehouse secondaries they hold because AAA traded below 1:1. Totes normal. 5. It is not getting enough coverage, but [Endowments ](https://www.reuters.com/world/us/harvard-university-exploring-1-billion-private-equity-stakes-sale-bloomberg-news-2025-04-24/)are forced to sell PE holdings due to Trump's tax threats. This is not getting the coverage it deserves because it will force liquidity and price discovery events to cascade across the private markets.

WillingnessFinal1411

I rewatched Inside Job. It's beyond clear that the market business is fake and the nosedive is imminent. CDEs were sold as AAA until it all collapsed. Stock market is a posteriori thing, institutional failure more likely the real event we are waiting. The signs? People factors only. 

Aggressive-Donkey-10

sorry, no AAA rated CLO has ever defaulted in the past, but correct there is always default risk going forward, as that is unknown. Same with US treasuries.

Bostradomous

Your position is woefully ignorant. Credit default swaps and mortgage backed securities are INVESTMENT PRODUCTS that pension funds, IRA’s, 401k, individual investors, institutions all own. Sure, AIG played a large role, but the idea that you are trying to lay all the blame at AIGs feet is simply moronic and shows you have little to no understanding of the crisis and how the financial industry works. This reads like you watched a 15 minute YouTube video on the crisis and they must’ve talked only about AIG. Somehow you blame AIG for the fact that every single large investor and institution owned MBS’s and they all owned shit tranches of MBSs. You don’t blame the mortgage bankers who made the loans to people with insufficient credit. You don’t blame the investment bankers who spun off bad debt into high-grade MBS. You don’t blame the ratings agencies who refused to downgrade the debt from AAA (despite the debtors being in default). You don’t blame the banks who KNOWINGLY and WILLINGLY spun debt of bankrupt creditors off their books and sold it to others as AAA rated credit. You’re literally a shill for the credit rating agencies if I didn’t know any better 😂. There’s so much info out there on the crisis, educate yourself

inertm

no default risk? what AAA CLO tranche is JAAA?

GLGarou

And gamers wonder why AAA publishers target "whales"...

2nd_yr_cs

I ordered a spicy miso Japanese ramen with vegan broth + AAA striploin steak + seasoned egg. Total 25 Canadian dollar after tax. Remove the tariffs 

IntrepidSoda

wait till they pool the cashflows from grocery loans into an collateralised debt obligtation and slap a AAA rating and sell it to Wall Street.

Own_Hat2959

I mean, in the realm of modern finance, we could create some fairly safe alternatives with synthetic debt obligations. Take bonds from the top 20 AAA-AA credit rated companies and sovereigns, bundle and slice them into tranches, sell the top tranche. You essentially end up with a super AAA tranche that is safer than any one AAA holding that can be diversified across denomination, country, industry, region, interest rate, counterparty, and pretty much any type of risk you can think of. It would take an awful lot of defaults before that top AAA tranche would get hit. First you would have to have defaults, then they have to claw through all the built in reserves and then put enough losses on all lower tranches to even cause a loss in the AAA tranche.

Old-Paramedic-2192

> Unless you're doing non-Steam AAA games, or Windows specific software, there's no reason to use Windows. And it's not like Teams doesn't suck on Windows or Mac as well . . . There is. I can't watch movies from Bluray disks on Linux. Which really sucks.

a_library_socialist

Meh, modern Linux distros are easier to install or use than anything on Windows. Unless you're doing non-Steam AAA games, or Windows specific software, there's no reason to use Windows. And it's not like Teams doesn't suck on Windows or Mac as well . . .

putsellingregard

average Americans using buy now pay later for groceries i’m gonna create a new financial product CDO packaged together of bread, eggs, and milk AAA rated 

Infohiker

Just using the current [AAA Bloomberg indices.](https://www.bloomberg.com/markets/rates-bonds/government-bonds/us). I prefer MMD or even MMA scales - Bloomberg's scale is still a work in progress, but getting better. Easiest to access for this conversation. But that is the AAA. There are still plenty of money good long munis trading cheaper. Mass St GO 5% of 2055 trading around a 4.75. They are AA but I have zero credit worries on State GOs. Go into essential service bonds like water/sewer and you can probably do even better. Your 3.90 guesstimate is not bad, to be fair. I think long term Muni/UST ratios are around 85-90%. But there are many times where munis get to 100% of UST in the long end. Times of volatility like now are one of them.

AcceptableGiraffe172

Coming from a value investing mindset, I would say: stay focused on buying quality assets at good prices, rather than just chasing yield or "safe" labels. \- Microsoft bonds are a smart pick — AAA-rated, strong cash flows, very close to "risk-free" without the political mess of Treasuries. \- Shorter-dated Treasuries could be a nice complement — less political risk and still solid returns. \- Bond ETFs diversify, but you're right: they don’t protect capital perfectly and income can fluctuate. \- Don't totally give up on stocks — this is when value opportunities appear. I personally combine ETFs with selected undervalued stocks, using tools that notifies by email me when top value investor (like buffet, higgons etc) are buying a stock. It help me save time spotting undervalued stocks.

DougDHead4044

It's an AAA stock grade!!! Can't be wrong, shorting it 🙌

Hot_Program9450

Subprime mortgage securities of the mid 2000s were also rated AAA…

bluesuitstocks

Here, I’m just gonna have an AI explain this because you seem real confused and I don’t wanna type out what is just basic reality for you: When Congress passes a spending bill and tax revenue falls short, the U.S. government runs a budget deficit, typically financed by issuing Treasury bonds. If there aren’t enough bond purchasers at the current interest rate, several scenarios can unfold: 1. **Higher Interest Rates**: The Treasury may offer higher yields to attract buyers, increasing borrowing costs. This can ripple through the economy, raising rates for consumers and businesses, potentially slowing growth. 2. **Federal Reserve Intervention**: The Fed could step in, buying bonds (quantitative easing) to stabilize markets and keep rates manageable. This increases the money supply, risking inflation if overdone. Recent Fed actions, like maintaining rates between 5.25-5.5% in 2024, show caution to balance inflation and growth. 3. **Market Disruptions**: If demand remains low despite higher rates, bond prices could drop, signaling reduced confidence in U.S. debt. This might pressure the dollar’s value and raise import costs, though the U.S.’s AAA/AA+ rating (S&P, Fitch) and reserve currency status make this less likely short-term. 4. **Fiscal Adjustments**: Congress could cut spending or raise taxes, but political gridlock often delays this. The debt ceiling, if not raised, could force prioritization of payments, risking default—though this has never occurred. 5. **Foreign Buyer Dynamics**: Foreign investors (e.g., China, Japan) hold ~30% of U.S. debt. If they reduce purchases (as China has gradually), domestic buyers or the Fed must fill the gap, potentially at higher rates. In practice, the U.S. benefits from strong demand for Treasuries due to their perceived safety. However, sustained deficits—$1.8 trillion in 2024, per CBO—could strain this if economic conditions worsen or confidence erodes.

classy_coder

I need a AAA rated Tesla bond in tranches

LimitlessTheTVShow

Bundle them all together and you can get them rated AAA

HippityHoppityBoop

Mark Carney should launch a charm offensive around the world touting Canadian govt bonds as the AAA bonds that they are, as a more stable alternative to USTs.

the_brown_saber

You could combine the BBB level with AAA and diversify the risk. Lol

Stateof10

I am curious, given all the news about Treasury yields, whether there has been a larger-than-expected inflow into high-rated AAA municipal bonds. Treasuries are a completely different beast, but it would still be interesting to check.

Misher7

A lot of that debt ain’t being repaid and will need to be restructured or written down. It’s likely packaged up in some dogshit CDOs with AAA ratings as well. Hello 2008.

Kingkongcrapper

2008 felt different as well. If there was no bank and auto bailout we would have been in a second Great Depression. There were so many bank failures and both Citi and Bank of America would be gone right now. You can say that was self inflicted as well. Loosened lending standards, the Fannie and Freddie facilitating the packaging bad mortgages and good ones to create AAA grade CDO investments that were then sold to pensions by hedge funds. Insurance companies signing off on every mortgage purchase. The allowance of No Income No job and no assets loans (NINJA) loans. This is all self inflicted harm. It’s more complex than what Trump is doing, but self inflicted none the less. The 1929 run up and crash was self inflicted as well. Lack of securities regulations combined with a lack of a competent FED and Treasury drove the economy into the ground. I can go on and on but most bad recessions and depressions were self inflicted to a certain extent. This is no different. In fact, even if Trump were to immediately reverse all of his policies we are still going to enter a recession because damage has already occurred. I think at this moment though we are more likely going to experience our first depression since the 1930s.

Due_Toe_5677

Thanks. I totally get what you're saying about the high threshold for actual default, taking into consideration the "macro backdrop". Yeah ... that's why I'm not going to be holding any AAA CLO ETF for a while.

Complex-Air9572

Wasn’t LB also rated at AAA the day before?

AerieMost2300

Yes exactly You need to think about this a bit differently AAA CLOs are junk loans with a slight bit of leverage pooled together - compared to something like treasuries they are obviously dangerous and even compared to loans from large caps they are riskier - but you would be 10x better off in something like a CLO versa some junk bonds you get from [public.com](http://public.com) or whatever that yield close to 7%. The AAA CLOs upside is in the incredibly high threshold it would take to actually tank the instrument in terms of defaults. If the macro backdrop is alright - these can be totally fine to own. Monte-Carlo experiments are more relevant here I think than like the actual loan by loan portfolio

Due_Toe_5677

I have a question for you...is the cause of this "1-way liquidity" the lack of market makers for corporate bonds in general, or is there some other aspect of this that I don't understand? I got fooled by the "AAA" in the names, thinking it described the underlying loans. I bought a small amount of PAAA and then started investigating CLO ETFs more carefully. I kept reading about these "tranches" wondering what that was all about. Within a couple of days I had digested a lot more information, including the paper I linked to, and then I realized what these products really are. I like your way of putting it ... "the advantage of CLOs is strictly in the structure not in the underlying quality of the loans." To put it another way, you have a giant stack of shit but the AAA tranche holders get paid first ... hence the over-collateralization you speak of.

AerieMost2300

I don't necessarily see how short term margin compression will impact CLOs very much. You are much more likely to get bad quarters with the company actively financing the CLO liability then a company that outright defaults in paying the CLO. While I agree lower tranches have a much more serious risk and a lower default floor - I would really doubt the majority of the market that largely AAA tranche would get snubbed too much. If they do, I also think we have bigger problems like main street basically getting tactically nuked via bankruptcy.

iyamwhatiyam8000

All I can think of is institutional investors such as retirement funds demanding AAA ratings will pull the plug due to their rules and start the run.

iyamwhatiyam8000

All Trump has to do is more of the same and then something outrageous and he will pull the rug out from under it. A falling bond market with a sliding dollar and a nervous stock market is not a good place to be and raises the risk of default. How is it that Moody's still has the US rated at AAA?

codesplosion

Still time to get in on copper futes. I have some really quality futes to sell you, AAA grade guaranteed

Reasonable_Tower3816

AAA corp bond is lower risk than treasuries at this point no? lol

Evilbred

No, it was banks packaging subprime mortgage debt as AAA investment grade securities is what caused it. This happened because of the Bush administration banking deregulations.

brujesino

They just bought AAA so that really opens them up in mexico

Hwangoutpltr

5'4" and hung like a AAA battery

cherie_mtl

Here's from ChatGPT with sources Frasier Institute and Investopedia: Canada’s fiscal position is relatively strong among G7 nations. It holds AAA credit ratings from Moody’s and S&P, and an AA+ from Fitch, reflecting high creditworthiness. In 2023–24, the federal deficit was C$61.9 billion (2.1% of GDP), exceeding targets due to one-time costs like Indigenous settlements and pandemic-related expenses. However, Canada’s net debt-to-GDP ratio is the lowest in the G7, thanks in part to substantial assets in the Canada and Quebec Pension Plans. While gross debt levels are higher, Canada’s fiscal outlook remains favorable compared to its peers.

Jweezy00

I agree. As I said in another post, everybody always overlooks the government's role in what led to the '08 recession. This is something even the movie "the big short" doesn't speak on (it only mentions the creation of MSB's but never gives a quip of how a safe security rated AAA could be filled with toxic sub prime mortgages).

FinTecGeek

What is most important to remember is that during periods of intense market stress, relationships that are usually strong (correlations that are normally high) will WEAKEN. This has been the pattern, with the dollar falling, yields rising and risk assets falling all at the same time. The typically strong inverse relationships between cash and risk assets is weakened/not performing within our models. Overall, we know we have liquidity problems, we know AAA asset-backed securities have moved off 1:1 notional and we know that the basis trade has blown up. So now, we are seeing a series of feedback loops trying to "burn themselves out" all over the place. If policy direction from DC gets back in line, they will burn themselves out soon and normal relationships will strengthen again.

VioletteKnitting

Canada has a AAA bond rating and we launched a US dollar bond in March.

Consistent_Shock3177

AAA just posted an article today that average gas prices are down and seasonally low right now.

onlyonebread

The thing about 2008 was that it was a perfect storm of multiple factors. It's true that ARMs played a role, but ARMs were not the _cause_ of 2008. Subprime borrowers were also not the cause of the crisis, but they also played a role. Same thing with MBSs. All of these things have existed before without issue and they still exist today without the same risk, because there are mitigators for preventing fallout from them. 2008 happened due to a combination of these things: * Subprime borrowers we granted loans that they realistically were never able to pay off. Lenders had an incentive to create as many new mortgages as possible because the MBS product was in very high demand due to its returns and perceived risk. On top of that a lot of these loans were ARMs with attractive intro rates, which meant that in due time they would fail (time bomb). The thing to note here is that _normally_ subprime loans are mitigated by having shit credit ratings so people don't buy them. The bombs aren't dangerous because everyone knows they're bombs and won't touch them without proper compensation. Unless... * Credit rating agencies were _fraudulently_ rating these financial products as not just safe, but _AAA_, the highest possible rating you can give. The kickback from giving these ratings was too attractive. Nobody wanted to be the one to stop the party. * Because on paper you had products that were supposedly extremely safe AND provided high returns, people started applying leverage. Derivative assets based on the trajectory of all of this flooded the market because there was so much money to be made. All of these assets became completely intertwined with all other assets, which is why the crisis had a global effect. From all of this, it paints a clear picture of how this system teeters on a delicate balance. Once the subprime loans started to default all of the other financial products failed too, causing the whole thing to topple over.

Alexander459FTW

You do understand there is something called momentum. Nintendo has a lot of momentum. Even if they made completely garbage games, there would be a steady stream of fans to buy their garbage. I am not talking from an investment pov. I am talking about their dev capabilities. This isn't even a Nintendo only problem. Most AAA and AAAA game projects for the last 5+ years have had a steady downward trend. The most important reason for that is the adoption of corporate culture from other sectors. Reality is that you can't really get away with just convincing your customer base through marketing tactics to buy your product. You also need an actually "good" product that your customers want to buy. Another important aspect of this whole conversation is that game development doesn't necessarily need to have a huge budget. On the contrary, a huge budget can easily lead you astray. Corpo culture has led large game dev studios to wrongly think that big budget equals better product and bigger success. This isn't true. The only reason that companies like Nintendo have gotten away with it is momentum. Unfortunately, for them if a new studio or an indie dev offers a replacement product that is actually good, they will just collapse. At the end of the day, there is only so much money and time a gamer can afford to spend. Why buy a new Pokémon open-world game when it isn't half as good as Palworld?

gentlegiant80

JAAA. Relatively safe corporate bond fund with AAA rated debt. Pays more than HYSA. You might also look into a Tax Free Bond fund particularly if you have a high federal rate or live in a state where yields from your state’s municipal bonds are tax free.

jayxmor

Pretty regarded but I ran out of gas and had to pull over the car. I’m pretty AAA thought I was crazy for having a 2025 and running out of gas 

Disastrous_Equal8589

Yes, the AAA tranche will always get paid first, which is why it has the lowest risk, lowest default rate, lowest yield, etc.

Due_Toe_5677

Oh yes, you are correct. It's been a while since I look into these. My initial comment was still mostly (?) accurate ... it's the tranche that's labelled "AAA", meaning that in the event of default in the underlying assets, the AAA tranche gets paid off first. When I first learned about these, I assumed that the "AAA" meant that the underlying debt was rated "AAA", which it isn't.

Disastrous_Equal8589

AAA CLO ETFs invest in only the AAA tranches of CLOs. Funds such as CLOZ or CLOB also invest in non investment grade CLO tranches, which are more risky, but they will have higher returns to compensate for the extra risk

Due_Toe_5677

Please correct me if I'm mistaken: When I first learned about AAA CLO ETFs, I assumed that the underlying assets (the individual loans) were rated as AAA. They are not. The AAA refers to the tranche not the underlying assets.

Due_Toe_5677

I looked into AAA CLO ETFs back in February. After buying some PAAA, I read a paper about them over a weekend, and closed my position the next monday. Here is the paper: [https://papers.ssrn.com/sol3/papers.cfm?abstract\_id=3379979](https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3379979) The authors identify a bunch of different issues, but my biggest take-away was that ETFs provide an illusion of liquidity, not actual liquidity. Because the underlying assets are traded over the counter, there is no market maker for them. The authors argued that during times of financial stress, the market dries up, and the ETFs, which normally provide daily liquidity, can no longer do so. It was eye-opening.

DC_cyber

If the smart money already moved would the market not already been further in decline? That’s precisely what I’m trying to figure out. But how do you measure smart money movement? I have 2 data points from the past: 2011 U.S. S&P Downgrade: After S&P downgraded the U.S. from AAA to AA+ in August 2011, U.S. stock markets dropped sharply. The S&P 500 fell about 6.7% on the first trading day after the downgrade, and volatility spiked, with the VIX index nearly doubling during the month. However, U.S. Treasury prices actually rose as investors sought safety, driving yields down from 3.4% to below 2% between April and early September. 2023 U.S. Fitch Downgrade: When Fitch downgraded the U.S. in August 2023, the S&P 500 lost 1.38% in a day, the Nasdaq had its worst day in five months, and global markets also fell. Treasury yields rose as prices dropped, reflecting higher perceived risk

wallysta

Even before the current chaos, US stock prices have been very high for a while, so expected returns are very low over the next 10 years or so. I think fixed income might be a better bet at the moment compared to US equity for the medium term. Assets you might consider outside US stocks to add diversification US credit. - CLOs offer a range of risk tolerances. AAA - Equity, and all that has to happen is companies don't go broke. Preferred Shares - more like fixed income than common stock. ETFs available offering broad exposure. ExUS Developed Markets - There are lots of markets which are valued well below that of the US currently, and seem to have more stable & less erratic leadership. Will benefit from a devaluing USD. You don't need to pick and choose, ExUS ETFs are available on most markets Emerging Market Stocks - lower valued again compared to ExUS Developed and if the USD falls will have that tail wind Catastrophe Bonds - New ETF listing in the US soon which should offer uncorrelated returns to the overall market Emerging Market Bonds - Both USD and local currency, offer higher yields to developed market bonds, and will be helped by a falling USD. They offer better diversification because default in one country doesn't lead to defaults in others, like corporate bonds. Global Infrastructure / utility stock funds - Usually pay higher dividends and offer lower diversification to the market. REITs - Some REIT sub classes offer lower correlations to the market, healthcare and self storage are 2 examples I wouldn't use these to try and 'beat' the market, but they may offer diversification and a different return path beyond a traditional stock / bond portfolio

sprufus

I'm still waiting to jump on those AAA rated burrito bonds.

VenatorFelis

Remember what happened when S&P downgraded the US in 2011? That was under Obama, now consider the point-blank extortion practices that happen already with some law firms. Pretty sure US based agencies won't move so the risk i see is we end up in bonds full of shit and AAA rating. Again.

poorpatsy

AAA corporate bonds are becoming safer relative to US treasuries as the ability for these companies to generate revenue increases while the ability of the US gov to tax them decreases

Goodbrick

What does this mean to those already holding AAA bonds?

No_Security_6252

Cannot wait to buy a 3x leveraged AAA collateralized margin call klarna debt obligation

Disastrous_Equal8589

FYI, AAA CLOs have never defaulted. The risk is the non investment grade and especially the equity tranches

psychonutty

Revenue streams wont dry up, they just wont be able to maintain continued growth, which is what their valuations are based upon. This is why I make the comparison to 2008. In 2008 you had investors investing in CDOs which were marketed as low-risk and labeled as AAA. The issue I see now, is that the entire market is wildly overvalued and has "priced in" continued year over year growth which I outline as impossible due to the lack of increase in available monies in the market, due to stagnant wages.

Hot-You-7366

Some prominent examples include the Panagram BBB-B CLO ETF (CLOZ), the VanEck CLO ETF (CLOI), and the BlackRock AAA CLO ETF (CLOA). Other options include the PGIM AAA CLO ETF (PAAA), the Invesco AAA CLO Floating Rate Note ETF (ICLO) and the AXS First Priority CLO Bond ETF (AAA). 

FromTheOR

I’m in the lovely situation that I’m mid cash balance plan. So while I’m 10% more bonds than I’d typically be, I had to make a decision about US vs Ex-US %’s. I guess it’s really all about ratios right? So I guess my snafu was minor. I went into this madness @ 20% ex-US:US as opposed to 28% ex-US:US. I chased the growth because my bonds were 10% higher than my initial plan & I leaned US. I don’t have the bandwidth to figure out if I did any real damage but I think the extra bonds probably covered me. But now I’m worried my cash balance plan could be fucked too. It’s influenced by 2 year AAA corporate bonds & those are going to skyrocket because no one wants that in uncertainty. I mean I’m worried my 2 year treasury bond is not so guaranteed either. I mean I know that’s hyperbolic but Christ these assholes are either in chaos or purposefully trying to hurt the US.

Luckytiger1990

I work in finance. Ratings and ratings agencies are utter garbage. You would not believe how little effort they put into the making the sure the numbers they use for their ratings are correct, and you would be surprised at the subjectiveness with which they diverge from what their own ratings calculations show something should be rated. Obviously a AAA bond is safer than a CCC, but besides that, it doesn’t fucking matter.

btbtbtmakii

lol I don’t think you know how debts work… you can’t force another country to buy AAA debt, let along shit tier debt

IndividualSkill3432

Fuck me people here never lived through 2008 or at least were not paying attention. If the bonds lose AAA rating the banking system will lose the ability to hold them as securities for their reserves. This will mean they will not be able to loan money until their loan books have shrunk to meet the new asset holdings. Companies will not be able to roll over commercial paper and massive retrench and cut costs others will simply go out of business this will cause cascades of bankruptcies that will hit the insurance instruments for those companies bonds etc. I think someone needs to put Margot Robbie in a bubble bath again so people can understand how serious what people say is happening in the bond market would be. But what will likely happen is the Fed would buy up the bonds and sit them in their books if it ever got to that level of crisis. In a more realistic scenario the worse the economy looks the more people will want to exit equities, commercial bonds and everything else and simply derisk with T Bills as a big place to lump and derisk.

Academic-Image-6097

Yeah I also saw the Big Short. Not saying you're wrong, and the big three ratings agencies should not have the last word, but sovereign debt is a different thing than complex financial instruments. And a Black Swan event can always happen. The French might accidentally nuke Switzerland, even though they have an AAA rating. And for what it's worth, Egan-Jones gives no actual rating, puts the economic data of the USA around BBB, but also says: "*Major issues for prospective credit quality are likely to include an analysis of the benefit of the dollar as a reserve currency, the relative burden and the amelioration of the costs associated with entitlement programs, the tenor and future course of extraordinary monetary actions, and the likely growth rate of the economy. A major challenge for most of the developed economies will be addressing the increasing dependancy ratio although the growth rate in the US is expected to be stronger than that of other developed countries. Some market observers contend that a country issuing debt in its own currency can never default since it can simply print additional currency. In the case of the US, at times of economic difficulty, the country actually benefits since investors perceive the country as a safe haven*" https://egan-jones.io/client/reports/3352Z%20US_131110.pdf

Illustrious_Hotel527

I've never known why a country w/ $35T in debt (>100% GDP) with a $1.5T/yr deficit is rated AA or AAA. I know it's denominated in USD, but still. Should be rated BBB/BB or worse, even w/o current leadership.

Academic-Image-6097

I've said it in other threads: US bonds are still considered very safe. They're AA rated. If you are worried about this and want bonds that are even safer, consider government bonds from a country that is AAA rated, like Australia, Singapore, Germany, Switzerland or the Netherlands.

delulubacha

I mean if there was a time to do it, it most certainly is now. But I work in the industry in small quiet corner of the world and a 2way price in anything longer then the 5 year is eye watering at the wides for AAA rated sovereign debt. I’ll admit I’m operating at the more illiquid end of the scale but I can’t even imagine how you move something like they quickly.

Due_Toe_5677

A couple of months ago I briefly dabbled in AAA CLO ETFs. I put a little money into PAAA, and that gave me the incentive to read up these investment vehicles. I came across this interesting paper, written in 2019, and immediately closed out my position. [https://papers.ssrn.com/sol3/papers.cfm?abstract\_id=3379979](https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3379979) I don't remember the details as well as I would like, but I e-mailed a link to a friend back then. My summary of the risk factors is listed below. But my the top line takeaway was that the ETF structure masks the lack of liquidity in the underlying debt instruments, which are traded over the counter and don't have market makers. In other words, the ETF structure provides the illusion of liquidity but that liquidity disappears during times of financial stress. 1. Lack of market-making and other regulatory changes that will impede price discovery in the next downturn 2. Masking of the deterioration of underlying collateral and “rearview mirror” analysis 3. New versions of the old games played by the rating agencies 4. Explosion in Asset-Liability mismatched structures 5. Regulatory changes in compliance of financial institutions

ContributionNo9292

Every time the credit rating drops it triggers a forced sell off by a lot of investment funds. Many have limits that bar them from having less than AAA rated government bonds. Under extraordinary circumstances they can hold them longer than normal, but not indefinitely. They would be knowingly assuming risk that their investors did not sign up for, thus opening themselves up for lawsuits.

Alan2420

AAA+ rated CDO's of calls on puts and puts on calls.

MyCactusTeacher

bonds are fixed income, ie a safe return like getting paid interest on your money. the value of getting that income goes up and down in the bond market. yields are inversely directly correlated to bond market price (the more you pay, the less you get in returns as a ratio and vice versa) bonds represent faith in the US to pay its debt and on the dollar as global reserve currency. much of our economy is built on bonds because they are considered like super AAA instruments simple enough?

netfalconer

What AAA rating? 🤣 The US is no Germany.

kaos207

We haven't been AAA since the Obama administration. Have the rating of AA+, which might downgrade with the sell off of our T-bonds from China

Novel_Quote8017

Can't Trump just threaten the rating agencies to keep the US at AA+ or AAA, no matter the actual bond situation?

earthcomedy

i don't think. I just react! I have no clue. I can say when I saw AAA CLOs break down in Feb/early march , I dumped my sizeable CLO positions. JAAA / PAAA. Along with various other things. I've owned a lot of PULS ultrashort bond ETF...it's also broken down in the last week. Slowly declining (It does own some PAAA). I've zeroed it out. Now into < 1 year treasuries and Schwab MMFs. The 5 year chart of the 10Y yield, in early 2022 it also climbed quickly due to Fed Funds rate change I think.

Illustrious_Hotel527

Gold, money market denominated in another country's currency, foreign bonds that are AAA or AA

Academic-Image-6097

The following countries currently hold a AAA rating from all three agencies: * Australia * Canada * Denmark * Germany * Luxembourg * Netherlands * Norway * Sweden * Switzerland I believe a bundle of e.g. Australian, Canadian and Danish would be a very safe bet. Yields are lower because of the low risk, of course, so it can still be worthwhile to invest in the bonds of countries with a lower credit rating, like the US.

McKnuckle_Brewery

There are too many kinds of bond funds to apply such a general rule. For example, there are some kinds of bonds that are much riskier to buy as individual issues, such as high yield corporate (a.k.a. junk). But with a fund holding hundreds of such bonds, the impact of a rare, isolated default is minimal. If you have a defined timeframe for needing your principal back, then individuals are predictable and safe if you choose wisely. Establishing a bond ladder is such a use case. If you are collecting distributions for income, don't mind a bit of range in their monthly amount, don't plan to cash out, and don't care about NAV volatility, then funds work fine. For example, I hold a variety of individual agency and AAA corporate bonds that are either callable or maturing when I might need them. But I also hold a couple of ETFs whose monthly distributions are a portion of my cashflow.

greenpride32

US debt has skyrocketed from $17t 10 years ago to $37t today. Fitch downgraded US's credit rating from AAA to AA+ in 2023. This is the main driver for the rush for gold and foreign nations (in particular China) selling off US debt. Increase the debt load and keep interest rates high - just do the math, it is not sustainable. Where does the US get the money to fund the interest payments? In any case, these are decades long issues; not something that materialized in last 2 days.