The digital credit market suffered one of its strongest sell-offs to date on Thursday,
Matt Cole, CEO of Strive Asset Management, describes the move as a leveraged sell-off rather than a sign of weakening credit fundamentals.
Cole said it was “the toughest day in the history of digital credit,” in an article on Both products are designed to trade close to their face value of $100.
“What occurred today was a leveraged liquidation event, not a deterioration in the quality of the underlying credit,” Cole wrote.
Investors attracted by the sector’s relatively high yields (both products offer returns above double digits) have increasingly used leverage to enhance returns, according to Cole. When prices began to fall, margin calls triggered forced sales, creating a self-perpetuating decline, independent of the underlying creditworthiness of the issuers.
“There’s an old saying in the income markets that the road to hell is paved with carries,” he said.
