"It's Starting To Feel A Lot Like 2007"

Tyler Durden's picture

The credit markets this week already look very different to how they ended last year. As BofAML's Barnaby Martin notes, beta-compression, flatter curves and credit outperformance versus equity have all been abundant themes of late. Relative value is still there, when one looks closely, but is unfortunately not what it used to be. He adds that "things in credit have started to feel a lot like 2007 again," and while he believes the trend is set to continue (though slower) and the liquidity-flooded fundamentals in the high-yield bond market have been holding up well, it is trends in the leveraged loan market, that continue to deteriorate, that are perhaps the only canary in the coal-mine worth watching as global central bank liquidity merely slooshes to the highest spread product in developed markets (until that is exhausted). The rolling 12m bond default rate among European high-yield issuers fell to 1.8% in December, whereas loan default rates rose to 8.5%. With leverage rising, the hope for ever more greater fools continues, even as everyone is forced into the risky assets.

Investment Grade bond spreads are now through post-Lehman tights...


And High Yield bond yields are simple remarkable...


With the riskiest assets (from dismally performing peripheral economies) performing the best by a long way...


even though loan defaults are surging!!!


Charts: BofAML

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
XtraBullish's picture

Never underestimate the replacement power of equities within an inflationary spiral. The trade for 2013 is SHORT CASH/CURRENCY which means you BUY gold, silver, copper, farmland AND STOCKS.



Transitory's picture

Chart 8 - not very promising for the loan/deposit ratio Tyler spoke of, but consistent.



orangegeek's picture

It's been feeling a lot like 2007 since 2011.  But since Barry wanted re-election he knew he had to empty the til and dump it into the markets and keep them up.  Another fine use of taxpayer dollars by the root cause of all of this - government.




Dow Jones weekly is on the verge of a new high that goes back to 2008.  The MSM is pumping positive - another sign of a major top.  The $5000-$10000 per ounce of gold articles are starting to show up again too - another sign of a major top.


Q4 earnings season should be entertaining.

XitSam's picture

2007? I thought it was starting to feel like 1929!

narmbs's picture

The issue is that those tight spreads didn't just pop up in 2007, but were tight from 2005-2007. Fed is definitely creating another bubble, but we are in the early to middle innings. With the Fed squeezing yields and forcing investors into securities with higher default risk and Uncle Sam raising taxes on traditional sources of income, this could go on for another year or two at least. We are back to playing musical chairs for the time being and the music will last for longer than most rational individuals think possible. Isaac Newton couldn't help but buying into the South Sea Bubble.

SmallerGovNow2's picture

Ugly ass charts.  thanks for the link...

zrussell's picture

Why don't the TPTB just get it over- and announce it already!!