• Steve H. Hanke
    05/04/2016 - 08:00
    Authored by Steve H. Hanke of The Johns Hopkins University. Follow him on Twitter @Steve_Hanke. A few weeks ago, the Monetary Authority of Singapore (MAS) sprang a surprise. It announced that a...

For Bonds, It's A Lehman Repeat

Tyler Durden's picture




 

There is plenty of discussion of outflows but we though the following chart was perhaps the most insightful at why this drop is different from the last few year's BTFD corrections. As we noted here, corporate bond managers have desperately avoided selling down their cash holdings (since they know dealer liquidity cannot support broad-based selling and its an over-crowded trade) and bid for hedges in CDS markets. But it seems, given the utter collapse in the advance-decline lines for high-yield and investment-grade bonds that the liquidations have begun. While the selling in high-yield bonds is on par with the Lehman liquidationlevels, it is the collapse in investment grade bond demand that is dramatic (and worse than Lehman). It's not like we couldn't see it coming at some point (here) and as we warned here, What Happens Next? Simply put, stocks cannot rally in a world of surging debt finance costs.

Corporate Bond Advance-Decliners lines are as liquidation-based bad as during Lehman (worse in fact for IG)...

 

Do Not Panic!! This is orderly...

The current decline in the high yield market, now at 30 trading days, has been the fastest since the end of the 2008 recession, with yields widening 159 bp. Only the July - October 2011 market decline had a greater ultimate magnitude than the current period.

 

As we noted here:

Remember - and it's important - there is no rotation that drives high-yield credit spreads wider without punishing equities. They are liabilities on the same capital structure and rise and fall in a highly correlated (well non-linear co-dependence) manner as the underlying business risk rises and falls. Do not, repeat do not, see high yield credit weakness as a sign of rotation to stocks - if the credit cycle has turned then stocks are set to fall. And bear in mind that while HY yields are at all-time lows, spreads are not and in fact being short stocks relative to credit makes more sense if you are you are a bear on the credit cycle here. The only problem being that the epic flows that sustained a credit market at non-economic levels for so long will exit in a hurry.

Charts: Bloomberg

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Tue, 06/25/2013 - 16:45 | 3692340 THX 1178
Tue, 06/25/2013 - 16:49 | 3692353 Groundhog Day
Groundhog Day's picture

"Get in there and SELL SELL SELL"

"Beaks where they hell is Beaks"

Tue, 06/25/2013 - 16:53 | 3692357 camaro68ss
camaro68ss's picture

bond sells turn me on.

Tue, 06/25/2013 - 16:56 | 3692366 g'kar
g'kar's picture

Bring on 5% CD rates!

Tue, 06/25/2013 - 16:59 | 3692373 fonzannoon
fonzannoon's picture

Good luck. The only chance banks have is to keep paying the peons zip and banking the spreads.

Tue, 06/25/2013 - 17:11 | 3692395 cougar_w
cougar_w's picture

So which one is easier for them to bail-in: CDs or savings? Whichever one it is, gets the better rate ... just before the sky catches fire.

Tue, 06/25/2013 - 17:14 | 3692405 zaphod
zaphod's picture

Don't worry folk, the FED can just drop short-term rates 500 basis points and start to print a bunch a money like it did in 2008. Then everything will be fine. It has worked every other time for the past 100 years.

The fact that short-term rates are already near zero and benny is printing massive amount every month already, is nothing to pay attention to.

Tue, 06/25/2013 - 17:22 | 3692430 icanhasbailout
icanhasbailout's picture

ZH: "stocks cannot rally in a world of surging debt finance costs"

Kevin Henry: #ChallengeAccepted!

Tue, 06/25/2013 - 18:13 | 3692580 derek_vineyard
derek_vineyard's picture

this economy is plenty robust it will welcome a hike in rates and return to normalcy.  ben's been holding the stock market back...watch the uopside when long rates hit 6%

Tue, 06/25/2013 - 18:57 | 3692706 Jake88
Jake88's picture

good one

Tue, 06/25/2013 - 20:30 | 3692909 francis_sawyer
francis_sawyer's picture

"The only chance banks have is to keep paying the peons zip and banking the spreads..."

~~~

Takes 'homeschooling' to learn how to do that...

Tue, 06/25/2013 - 21:16 | 3693011 TwoShortPlanks
TwoShortPlanks's picture

A 30 year Bond Boom, ending it's cycle in the biggest Bond Bubble in history, in a collapsing global economy, with all the printing that's happened, won't end in an implosion, it will end the same way a Star goes Supernova.

It will die like a Giant Star.

Tue, 06/25/2013 - 22:32 | 3693236 tip e. canoe
tip e. canoe's picture

here's the visual

http://www.youtube.com/watch?v=qm9_gpGF3Xw

on a long enough timeline, the White Dwarf outlasts all.

Tue, 06/25/2013 - 23:37 | 3693487 EscapingProgress
EscapingProgress's picture

I just opened up a credit card account with a $500 limit. Don't worry, the credit markets are saved!

Wed, 06/26/2013 - 01:25 | 3693700 derek_vineyard
derek_vineyard's picture

global bonds markets are twice the size of global equity markets...so the the 10% haircut to bonds can be offset by a 20% rise in equites to keep the wealth effect intact.    the effects of a vibrant, robust economy should not be underestimated!

Wed, 06/26/2013 - 01:35 | 3693707 derek_vineyard
derek_vineyard's picture

actually.....making only those contributions to ira's that go into the 1% coupon US debt salvation fund be tax deductible, eliminating cap gains on stock dividends and gains, raising tax rates on those living off of stock options will be a step into leveling the playing field.   all this policy promoting investing in equities has become way overdone and if the FED can ever be backed-off; the private citizen will be required to contribute.  Living a more frugal lifestyle, lessening materialism are other factors in the SOLUTION to this economic farce.  kinda like war bonds........if we buckle down and tackle the problem together....we have a chance.  but, i fear, it will take the crisis to get the soft, spoiled people of this country into the survival mode necessary to make these changes.  

anyone that will not comply with this plan will be deported to whatever country will take them.

Wed, 06/26/2013 - 08:51 | 3694216 tarsubil
tarsubil's picture

I was told at 4.82 the Federal Reserve Note is over. That sounds good to me.

Tue, 06/25/2013 - 18:37 | 3692651 More_sellers_th...
More_sellers_than_buyers's picture

These poeple spew these old adages like there is a market.  Laughable.  The Fed can do anything it wants. It has.  We don't know what they buy.  Besides, who is going to sell the market? No one owns stocks anymore and all the funds do is buy. Ask Fidelity what they do to a stock fund manager that sells stocks.

Tue, 06/25/2013 - 17:59 | 3692531 Panafrican Funk...
Panafrican Funktron Robot's picture

http://seekingalpha.com/article/1521072-s-p-500-stock-dividend-yields-vs-10-year-treasury

Pretty good article showing the collapse of the stock div arb.  Dividend stocks are going to get fucking pummeled.  

http://www.fool.com/investing/dividends-income/2013/06/25/will-dividend-paying-stocks-fall-more-than-the-mar.aspx

Yes, there are occasionally people on the Fool that are not completely stupid.  

Tue, 06/25/2013 - 18:04 | 3692551 fonzannoon
fonzannoon's picture

Panafrican I sold out of some good ones about 15% ago. Some healthcare reits and some MLP's.

I am not buying back in yet. You are making me believe I am not buying back in ever.

Tue, 06/25/2013 - 19:55 | 3692835 gmrpeabody
gmrpeabody's picture

+1

Tue, 06/25/2013 - 20:25 | 3692900 nope-1004
nope-1004's picture

The big indicator prior to the 2008 market meltdown was the corporate bond market.  Appears to be happening again, but will this time be different?  Dunno.

 

Tue, 06/25/2013 - 16:58 | 3692371 FL_Conservative
FL_Conservative's picture

I prefer the Kevin Bacon clip from Animal House that I posted yesterday.  Ok....I'll post it again.

 

http://www.youtube.com/watch?v=zDAmPIq29ro

Tue, 06/25/2013 - 17:12 | 3692397 The Thunder Child
The Thunder Child's picture

I prefer the Frank Drebin one myself, kind of reminds me of CNBC

http://www.youtube.com/watch?v=rSjK2Oqrgic

Tue, 06/25/2013 - 17:03 | 3692383 cougar_w
cougar_w's picture

please do not worry

Tue, 06/25/2013 - 17:19 | 3692418 The Shootist
The Shootist's picture

10 yr. creepin' to 2.61 currently.
http://youtu.be/8OZhw-aQTP8

Tue, 06/25/2013 - 18:15 | 3692586 Manipuflation
Manipuflation's picture

Country?  Are you some kind of hillbilly redneck bond vigilante asshole who is not afraid to tell anyone, who needs to be told, to fuck off?  If so, I will buy you a beer at the local tavern, shoot a few games a pool, hustle some cash and start a knock-down drag-out bar fight and get the hell out of there before the cops show up.  It's tradition

Tue, 06/25/2013 - 18:38 | 3692654 Manipuflation
Manipuflation's picture

A very interesting most popular comment on this one.LOL

 

http://www.youtube.com/watch?v=BjaqrL7Kzj8

Tue, 06/25/2013 - 17:47 | 3692507 disabledvet
disabledvet's picture

and i hear that's how you like it.

Tue, 06/25/2013 - 17:59 | 3692530 Cacete de Ouro
Cacete de Ouro's picture

Strogo

Tue, 06/25/2013 - 17:35 | 3692441 SRSrocco
SRSrocco's picture

Looks like we got all sorts of BLACK SWANS flying around today.  Funny how MSM seems to keep rolling along with the BS & GARBAGE as the whole system continues to disintegrate.

However, even as the paper price of gold continues to decline due to market manipulation... it hasn't stopped investors from withdrawing gold from the COMEX.  Today we had another nice withdrawal... from two different bank vaults.  If this amount was taken out of JP MORGAN's customer inventory... it would have totally wiped them out.

GOLD CONTINUES TO BLEED FROM THE COMEX

 

http://srsroccoreport.com/gold-continues-to-bleed-from-comex/gold-continues-to-bleed-from-comex/

Tue, 06/25/2013 - 18:11 | 3692575 Al Huxley
Al Huxley's picture

GLD inventory down by 16 tons today.  That's odd, I don't see a big spike in GLD trading volume.  I wonder where that gold went, I wonder who took it out of the GLD inventory.  I wonder if the Comex obligations will now settle cleanly for June.  So many mysteries.  The one thing it makes me really glad about though, is that thanks to the sterling character of our bankers and politicians, at least we know the gold market's not manipulated.

Tue, 06/25/2013 - 18:27 | 3692628 AL_SWEARENGEN
AL_SWEARENGEN's picture

JPM's vaults are near empty if we are to believe their numbers.  If we see a sudden spike up in the cocksucker's tonnage, it will be crystal clear.  Tyler, we need an update on bullion bank's warehouse stocks.

Tue, 06/25/2013 - 19:00 | 3692722 ekm
ekm's picture

I do not believe for one single milisecond that data coming from JPM vaults is correct.

 

It's all propaganda

Tue, 06/25/2013 - 21:28 | 3693039 PiratePawpaw
PiratePawpaw's picture

Many didnt believe that Titanic could sink.....

But im pretty sure the bridge crew had seats on the lifeboats......

Wed, 06/26/2013 - 00:11 | 3693577 jerry_theking_lawler
jerry_theking_lawler's picture

isn't all of this action created so their will be margin calls? doesn't margin calls=gold selling? won't this bring more gold available to the GLD?

 

just curious how/why this is playing out like it is. this is the 'deflationary' event I have been looking for in actual phyz gold, but is this the bottom? more selling on the way? inquiring minds want to know.

Wed, 06/26/2013 - 00:30 | 3693627 lakecity55
lakecity55's picture

once again, Al gets to the bottom line.

"EB, get over to the vault and let me know if Anything goes in or out. Is that too difficult? Wu and the rest of the Celestials are gonna make a move."

Tue, 06/25/2013 - 18:39 | 3692658 Herd Redirectio...
Herd Redirection Committee's picture

You would think with all this selling of gold that has driven the price down, some of it would have ended up in NY vaults.  Huh.  Strange that.  Almost like the weak hands are already empty?

Wed, 06/26/2013 - 03:17 | 3693777 zhandax
zhandax's picture

It appears more parties have realized the need to secure the real phys.  Even the paper price should bottom by August, and I wouldn't be surprised to see difficulties securing real metal by then.

Tue, 06/25/2013 - 18:58 | 3692716 ekm
ekm's picture

Do not fall for public data.

Its all propaganda

Tue, 06/25/2013 - 21:02 | 3692960 Bindar Dundat
Bindar Dundat's picture

Sell

Buy

Do they want us to sell or buy?

Tue, 06/25/2013 - 19:17 | 3692762 GS-DickinDaMuppets
GS-DickinDaMuppets's picture

I have got to say "Manipulaation" or not, I am beginning to wonder about where the Bass (fish) Turds are going to stop the downward slaughter - WTF !!

GS-DickinDaMuppets - doing God's work !

Wed, 06/26/2013 - 00:25 | 3693618 lakecity55
lakecity55's picture

Xi: haha, Oblama, you think snowman give spy codes??? hahaha, he give us rocation of all gorld!

Tue, 06/25/2013 - 19:28 | 3692785 Go Tribe
Go Tribe's picture

Bring down the Fed!
Buy The Fucking Gold and Silver Dip

Tue, 06/25/2013 - 18:45 | 3692673 slimething
slimething's picture

ROFL.....good one.

Tue, 06/25/2013 - 17:03 | 3692380 max2205
max2205's picture

But but they don't have to MTM bonds anymore.....right?

Tue, 06/25/2013 - 17:19 | 3692417 buzzsaw99
buzzsaw99's picture

i think you mean mtf (mark to fed) because there is no market, there is only the bernank.

Tue, 06/25/2013 - 22:15 | 3693191 BlackChicken
BlackChicken's picture

I think you mean mark-to-unicorn.

Tue, 06/25/2013 - 19:56 | 3692838 Never One Roach
Never One Roach's picture

I'm scared. This will be worse then th elast collapse, I'm afraid since the drivative exposure and leverage seems to be much worse now...mainly because the financial industry feels 'invulnerable' again.

Tue, 06/25/2013 - 20:36 | 3692916 SAT 800
SAT 800's picture

I reccomend you panic".

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