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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 - 19:42 | 3692811 sudzee
sudzee's picture

Big banks sitting on a couple trillion of absolutely free money could use some leverage and buy all outstanding US debt at 50 cents on the dollar. There, fixed it, now we own you lock stock and barrel, thank you.

Tue, 06/25/2013 - 19:50 | 3692826 cougar_w
cougar_w's picture

The Chinese seem to have beat them to the punch; I got a letter in the mail, out of nowhere, from a Chinese realtor offering to 1) buy my house for cash, and 2) let me live in it afterwards.

That is not even fiction. Still thinking about it, too. Ya hear me Ben -- I'm still thinking about it.

Okay!  I'll be checking the mail now looking for a better offer from The Fed. Game on bitchez!

Tue, 06/25/2013 - 21:07 | 3692980 SILVERGEDDON
SILVERGEDDON's picture

Take the deal - but only in gold or silver. Right fucking now. In a year or two, you can go buy a town, and several hundred thousand acres with the proceeds, become a mormon, and take on a couple dozen young wives.

Tue, 06/25/2013 - 21:16 | 3693010 cougar_w
cougar_w's picture

Tempting. Except for the converting-to-Mormonism. That's just ... wrong.

Wed, 06/26/2013 - 13:16 | 3695697 SILVERGEDDON
SILVERGEDDON's picture

Do it for the wives, and the food storage. Between that, a medical ganga grow op, and a couple of stills pushing out your own brand of Everclear, life will be good.

Tue, 06/25/2013 - 21:22 | 3693029 thismarketisrigged
thismarketisrigged's picture

why the fuck is gold selling off tonight?

 

i know its early, but gold is down 20 already

Tue, 06/25/2013 - 21:33 | 3693062 mendigo
mendigo's picture

I know little but I have heard it said that when shit meets fan, gold is liquidated

Wed, 06/26/2013 - 00:14 | 3693583 enloe creek
enloe creek's picture

gold will stabilise a bit around 1175 below that is pointless to consider

Wed, 06/26/2013 - 01:34 | 3693704 Tsunami Wave
Tsunami Wave's picture

Probably being manipulated again.  Gold certainly does sell off during potential market crashes (except that August of 2011 period)... but hey, I thought *NO ONE* owned it since most banks see it as useless and hold mostly paper positions???

Tue, 06/25/2013 - 21:27 | 3693037 rosiescenario
rosiescenario's picture

It is going to be interesting to see how gold's price reacts when some of the bigger So. African mines go offline. If gold's price holds at arounf its current level for a few more months, this is going to happen. It will also be no easy matter to bring those mines back on line, either.

 

On a brighter note, just finished reading a Bloomberg article (reportedly it was news) stating how great our economy is doing based on durable goods and on the boom in housing. Oh, and the auto industry is expected to have one of its greatest years ever and consumer sentiment is great, too. Everything in the article was so upbeat...almost too good to be true, but it was so reported by no less an authority than B'berg.

 

Funny, their sentiments do not appear to be shared universally, though I am sure many here are surprised by that statement and I will be taken to task for having made it.

Tue, 06/25/2013 - 21:30 | 3693046 thismarketisrigged
thismarketisrigged's picture

yup, did u not here , everything is cured.

 

china, europe. the u.s, everything is all cured. now the markets can continue to climb higher.

 

thank god we have zerohedge or we may not actually understand what is really going on. this is the only site u can go on and actually see what really is happening in the economy, and it is not very pretty to say the least

Tue, 06/25/2013 - 21:40 | 3693086 Cabreado
Cabreado's picture

And watch how while we are so capable of making a mess, we don't have a clue as to how to resolve it.

What would be the driving force behind such turmoil?

What could have happened, I wonder?

 

Tue, 06/25/2013 - 21:46 | 3693099 swanpoint
swanpoint's picture

Is this why PM's dropped the HK open?

Silver 19.02

Gold 1254.70

Tue, 06/25/2013 - 21:59 | 3693135 cloudybrain
cloudybrain's picture

look at the chinese bank, nearly rush the bank, bank sell derivative to fulfil its liquidity

Tue, 06/25/2013 - 23:42 | 3693506 jomama
jomama's picture

funny how the buy price hasn't dropped along with it...

Tue, 06/25/2013 - 21:48 | 3693101 franzpick
franzpick's picture

Lotsa unknowns in recent fed/China/credit developments affecting equity and bond values may coincide with stock price chart pictures being worth a 1000 more revealing words, to wit:

A small -2% 16 point SPX close below 1550 will point to another 3% drop to 1500, for a 9% drop in 6 days or so, and more after that.

An equally possible -2% NYA decline to 8800 will point to a closing of that gap at 8460 something, down another 5%, and down 11% in 6 plus days, and then even more.

Und So Weiter, as the European downside worldwide equity leader graphs point to unexpected lower lows in the unfolding bear market downtrend channel.

Major price breakdown trouble is just points away, can show up (down) on the screens in seconds or minutes, hiding in plain sight, thanks to doubletalk by the the politicized corporate media.

Tue, 06/25/2013 - 21:49 | 3693105 desoto
desoto's picture

Yep. It is time for the after hours gold raid!!!   They must be getting panicked now!

Tue, 06/25/2013 - 21:57 | 3693125 yogibear
yogibear's picture

No worry the Fed will pump up the market again with their unlimited printing. The Fed is always looking at juicing equities and housing to historic levels. Breaking records with unlimted liquidity.

Tue, 06/25/2013 - 22:11 | 3693169 shankster
shankster's picture

Everything looks fine here on the edge.

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