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High Yield Shorts As Confident As In October 2007

Tyler Durden's picture





 

While the supposed common-knowledge is that rising short-interest is where to look for epic squeezes (and indeed it appears to the case in individual stocks); in ETF-land, it tends to be the opposite (especially when the underlying of the ETF is relatively illiquid). Absolute short interest in the high-yield bond ETF HYG is at a record - surging to over 23mm shares - heralded by many as evidence that HY can squeeze higher. However, given the incredible rise in shares outstanding in HYG (as flows drove creation until around six months ago) the more reliable indication is the short-interest-ratio. The SI ratio is back at the same levels it was at the highs of the Oct 2007 period - we humbly suggest that this (as was clear in 2007) is anything but contrarian as professional bond managers using ETF liquidity to hedge their over-stuffed and over-flowing illiquid HY bond portfolios. With HY 'yields' at record lows, HY spreads near record lows (and crossover having only been tighter during 1946-65 repression), leverage rising notably, and valuations extreme (only 22% of CCC credits priced with yields over 10%!!!) is it any wonder that the professionals are as confidently hedged as they were as the credit crisis exploded and Lehman struck.

HYG's Short-Interest ratio is at the same levels it was at the top of the last credit cycle as professionals use the simple and cheap liquidity of the ETF to manage risk...

 

As HY Spreads close in on record tights...

 

and crossover spreads are back at 'average' levels only helped by the last repression...

 

As valuations are 'incredible' with CCCs (the best performer of the year so far) now with only 22% of names sporting a yield above 10%!!!

 

Even as leverage surge...

 

and of course HYG has deviated from its risk-on relationship with stocks - something that cannot last long given the cyclical impact of higher funding costs and structural impact on WACC...

 

Charts: Bloomberg, Morgan Stanley, Barclays

 


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Thu, 03/14/2013 - 15:25 | Link to Comment Cognitive Dissonance
Cognitive Dissonance's picture

Got 10 up days in a row for the DOW with 35 minutes to go. Don't blow it Tyler.

/sarc

Thu, 03/14/2013 - 15:31 | Link to Comment uno
uno's picture

does the dow records lead or follow the record number of people on foodstamps reported each month?

Thu, 03/14/2013 - 15:41 | Link to Comment James_Cole
James_Cole's picture

I'm gunna go with 'short squeeze' on this one. 

Thu, 03/14/2013 - 16:14 | Link to Comment Mark Carney
Mark Carney's picture

I once went short....still can't get th smell of my ass of my face

Thu, 03/14/2013 - 16:05 | Link to Comment Panafrican Funk...
Panafrican Funktron Robot's picture

Soon to be 11.

Friday, March 15, 2013 Monday, March 18, 2013 Outright Treasury Coupon Purchases 12/31/2017 - 11/30/2018 $4.75 - $5.75 billion
Thu, 03/14/2013 - 16:16 | Link to Comment uno
uno's picture

and on OPEX, what a coincidence

Thu, 03/14/2013 - 18:05 | Link to Comment johngaltfla
johngaltfla's picture

I remember commenting on this formation before ZH with some traders. We called it the "ASSFUCK" formation.

 

Welcome back to the future.

Thu, 03/14/2013 - 15:30 | Link to Comment rogeliokh
rogeliokh's picture

Everything is Bullish in this punkass market. Nothing is matter anymore.

just 2.5 month of exessive printing and everything is fixed. Full employment, Retail Sales "rocks"

Consumer confidence "rocks", all fixed. End of story. Washington itself don't matter as well,

It's all about Bernank, politicians can go home now. Economy is rocking and rolling..

Thu, 03/14/2013 - 16:02 | Link to Comment SheepDog-One
SheepDog-One's picture

The politicians are doing their part before the planned collapse, banning even shotguns in Colorado....fucking COLORADO?? While also arming THEMSELVES to the teeth with billions of rounds of ammo, armored assault vehicles....etc. 

Seems like things are 'calm', and they'll just go on forever like this....but I'm not buying that for a second.

Thu, 03/14/2013 - 15:45 | Link to Comment Seasmoke
Seasmoke's picture

This Dow 36,000 is taking too long ............Faster !

Thu, 03/14/2013 - 15:48 | Link to Comment SheepDog-One
SheepDog-One's picture

Insane teenagers with cars keys and free liquor are in control, and we're all sitting in the back seat.

Thu, 03/14/2013 - 15:56 | Link to Comment HD
HD's picture

tick, tick, tick...

Thu, 03/14/2013 - 15:59 | Link to Comment polo007
polo007's picture

http://blogs.wsj.com/marketbeat/2013/03/14/dows-winning-streak-has-that-roulette-feel-to-it/?mod=MarketsMain

What goes up must go down at some point, right?

The Dow Jones Industrial Average has risen every day this month, and judging by today’s early action, the streak may stay intact.

The nine-day winning streak is the longest for the Dow since November 1996. The Dow was up more than 50 points this morning, showing more conviction after wobbling to a combined eight-point gain over the previous two trading sessions.

There is historical precedence for such a move. Since 1948, there have been 24 prior occurrences of nine up days in a row for the Dow, according to the technicians at Instinent, an electronic-market operator. Thirteen times the streak ended at nine. Four of them stretched to 10, two stopped at 11 and one hit 12. The record is 13 up days in a row, which came in 1987.

Thu, 03/14/2013 - 16:04 | Link to Comment SheepDog-One
SheepDog-One's picture

I take it as 'pure desperation', thick greasy smokescreen to hide what's really going on....can't even allow ONE red close as that's 'too dangerous' at this point, they feel that would cause a stampede for the door it just shows how screwed it all really is.

Thu, 03/14/2013 - 17:31 | Link to Comment Doubleguns
Doubleguns's picture

They are out of red fucking ink. There is no other option at this point.

All the new money uses red ink with the green but they did not plan for Benny printing so much. Now they have a problem, no more red ink.

Thu, 03/14/2013 - 16:48 | Link to Comment El Viejo
El Viejo's picture

Houston, we have a Decoupling. (from: China, Oil, Reality)

Do NOT follow this link or you will be banned from the site!