00:00I see a couple of people doing some dumb things.
00:02JPMorgan CEO Jamie Dimon has warned that some banks are repeating mistakes from before the 2008 financial crisis.
00:09His fears are well-founded.
00:11Even though corporate bond markets look calm and credit spreads are near historic lows,
00:15the structure of the market is changing in ways that will matter in a downturn.
00:18Before 2008, banks and broker-dealers were the dominant price makers in corporate bonds.
00:23They held large inventories and used their balance sheets to stabilise prices during periods of stress.
00:28Since then, regulation and higher capital costs have sharply reduced their inventories,
00:34even as the market has grown to roughly $16 trillion.
00:38ETFs, on the other hand, have expanded rapidly.
00:40They now hold substantially more corporate debt than US banks.
00:44But ETFs are price takers.
00:47They would reinforce any downward moves, potentially turning a sell-off into a rout.
00:52There is no shortage of catalysts that could cause credit spreads to white.
00:55From massive AI CapEx to private credit loans to software firms souring.
01:00The realisation that the credit cycle is turning could trigger a rush to the exits.
01:05Investors, however, might find they can't get out nearly as quickly as they'd like.
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