High Yield

"The Dreaded Phase 4": What Happens When Credit Spreads Finally Rise

"Investing in Phase 3 is a dangerous game. Equity markets are moving into overshoot mode. This is nice while it lasts, but the Dreaded Phase 4 may not be too far away. This is when a global recession pushes both equities and credit into a bear market. Bubbles collapse... In 2007, Phase 3 lasted only 4 months."

BofA: "This Is The Key Risk-Off Signal" Ahead Of This Autumn's "Big Fall"

An imminent Aug/Sept "big fall" trade is plausible if poor politics shows up in consumer confidence, US high yield credit spreads gap toward 500bps; tech leadership reversal, and most importantly, if the US dollar rises despite lower UST yields and further drop in US presidential approval ratings.

The Billionaire Bears Club

"The next crisis won’t start in the equity market, or even the high yield bond market. The next crisis will occur when Central Banks lose control of sovereign bond markets. I know that is exactly the opposite advice that the Billionaire Bears Club boys are giving you, but I don’t mind being on the other side of their trade... Economic weakness will just mean more printing, it is economic strength that should worry the equity bulls."

Central Banks Are Hiding The True Price Of Risk

Central banks have put investor risk aversion to sleep: Under their guidance, financial markets are now betting on, and have high confidence in, monetary policy makers successfully fending off any new problems in the economic and financial system.

Ugly, Tailing 10Y Auction: Bid To Cover, Indirects Lowest Since 2016

Unlike yesterday's unexpectedly strong 3Y auction, which stopped through with impressive metrics despite the "hawkish" JOLTS report which showed a record number of job openings, moments ago the Treasury sold $23 billion in 10Y paper in a surprisingly poor refunding auction, which stopped with a large tail and with the smallest bid/cover since last November's Refunding.

Corporate Leverage Has Never Been Higher

With the following chart from Goldman's Robert Boroujerdi, we can finally close the book on whether US corporate leverage is at all time highs. It is... and it's even higher on a "normalized" basis.

WTF Chart Of The Day: Draghi's 'Markets' Have "Totally Gone Nuts"

If you want to earn a yield of about 2.4%, which instrument would you rather have in your portfolio, given that both produce about the same yield, and given that one has a significant chance of defaulting and getting you stuck with a big loss, while the other is considered the safest most boring financial investment out there?

Credit Investors Are Suddenly Extremely Worried About Central Banks

The latest credit investor survey by Bank of America shows a marked change in the Wall of Worry: "Quantitative Failure" by central banks has emerged as investors’ top concern (23%), up materially from June’s reading (6%). Investors say that a backdrop of the ECB ending QE next year, while inflation remains sub-par, "has the potential to rattle the market’s confidence."

SocGen: "Low Vol Can Misprice High Yield By Up To 30%"

"High confidence as to what an asset is worth can lead to underestimating the potential downside risks, which happens almost mechanically in high yield debt markets where asset volatility informs part of the pricing model. The implication is that high yield credit could be 30%+ mispriced as and when volatility moves back to average."