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

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Tue, 01/29/2013 - 18:49 | 3196627 Orly
Orly's picture

Double or triple-A rated corporate bonds, for instance...

Tue, 01/29/2013 - 18:00 | 3196454 1eyedman
1eyedman's picture

everyone is bullish, even on this site....claiming to be bears, but waiting for another X% up.   looks like the play is, go short at/into the close, and when, as it does most day, the mkt reverses in a 10min period cover.  repeat until, one day, maybe after end of month, it doesnt.    the first time we move down 4% it'll rebound imo.

advisers are as pent up and giddy as a 15yr old boy at band camp

Wed, 01/30/2013 - 06:18 | 3198070 GNWT
Wed, 01/30/2013 - 07:33 | 3198112 From Germany Wi...
From Germany With Love's picture

Everybody knows that the the stock market will eventually fold. This is a gambling game of who manages to jump off in time.
Don't you remember James Dean?

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