What Does Credit Know... Ah Forget It!

Tyler Durden's picture

It's been a great 2013 so far for risk-assets right? Wrong. Credit markets have hardly budged (spreads, as opposed to yields) as stocks have surged. We have seen this 'risk' disconnect a couple of times in the last few years and, well, it didn't end well for stocks... but this time is always different.

In 2009/10, stocks surged as credit stalled... then stocks collapsed...

 

In 2011/12, credit's highly correlated rally stalled and within a month the equity market had topped and rapidly fell back below the decorrelation level...

 

and now in 2013, HY and IG credit spreads have not partaken of this rally in risk at all...

 

It appears, as we have noted before, that credit anticipates and equity confirms. And just for clarity, this is credit spreads (not yields) and therefore does not represent a 'rotation' from bonds to stocks - these are apples to slightly different apples comparisons of two different markets' perspectives on market risk...

 

Charts: Bloomberg and Capital Context