High Yield Bonds Are Flashing Red Again

Tyler Durden's picture

There is a glaring divergence between the performance of US equities and high-yield credit's spread over investment-grade credit. As BofAML warns, "either HY rallies or stocks soon in a bit of trouble," because the only pillar left to hold up the fragile un-bubble-like stock market - buybacks - will disappear if costs of funding start to surge (there's always a limit to the leverage a credit cycle will bear). The more concerning aspect is that it appears investors are already rushing for the doors... as this week saw the largest HY outflows in over a year.


HY better rally soon - or stocks are in a bit of trouble...


As last week saw massive outflows from HY...


The biggest HY outflows since last summer's Taper Tantrum as perhaps the professionals realize the repo market's breakdown is something to worry about...

This week alone has seen major derisking in HY...


Simply put, the Fed can't have it both ways - if they think HY credit is in a bubble then it directly implies costs of capital for stocks are too low and thus stock prices too high...

*  *  *

Just to be clear - this is not a "rotation" excuse from HY corporate bonds to stocks - the two assets are intricately exposed to exactly the same underlying business volatility on an idiosyncratic basis... if credit spreads start to widen (which they are) and the endless demand that has enabled massive issuance used for buybacks starts to weaken (which it is) then the hopes of this bubble ending well - as firms are forced to admit just how weak 'real' earnings are when unadjusted for shrink-floating manipulations...

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ekm1's picture

Which part of "CENTRAL COMMAND" you guys do not understand?


In a central command setting, indicators mean absolutely nothing.


Everything depends squarely on decision making power of central commanders.

Divided States of America's picture

ekm?? is this the original ekm that a year or so ago called for an executive order that will destroy everything??

DoChenRollingBearing's picture

Gold, fish....  Oh, never mind.

bunzbunzbunz's picture

Google listed bitcoin as a currency...get some free now while the price is still in consolidation: http://freebitco.in/?r=25727

DoChenRollingBearing's picture

Why not just buy Bitcoin the old-fashioned way?  With a credit card!


Divided States of America's picture

ekm, u decided to come back on ZH because you sense that the time is nigh? I dont want to have to wait another year only for you to disappear again into oblivion.


ekm1's picture


My original expectation was an Executive Order to crap the whole thing on a day to day decision between May 2013 when yields went up and December 2014.



Divided States of America's picture

I dont mind waiting 5 more months to see how this gong show unfolds. Lets hope you stay on ZH till then.

ekm1's picture

Humans can predict events only with systematic analysis

Timing belongs to God only, since decision making is based on free will of decision makers. Not predictable

knukles's picture

You'd think that the High Yield market wouldn't show these signs if it were manipulated?
Oh, that's right, the Fed doesn't buy high yield bonds... well, except dog shit mortgages, but they ain't high yield, now, are they?

Hah ha ha ha ha ha

max2205's picture

Signs of barry not letting the russkies borrow in our markets anymore. 


Plus it somehow adds up to 7....



Al Huxley's picture

I just can't seem to imagine a way that there could be any correlation between easy borrowing and excessive stock speculation. 

NoDebt's picture

Exactly.  That's how we know the market is legit and all systems are functioning in their usual, efficient way.  

As a side note, I was out of my overweight in high yield (via JNK) a over a year ago.  Posted it on ZH as I was pulling back from WAY overweighted.  At the time I said I'd rather be a year early than a week late.  And, as usual, I was easily a year early.  Almost 18 months, actually.

(And as I have posted on ZH frequently, early is the same thing as wrong.)

Black Forest's picture

Third law of thermodynamics: It is impossible for any process, no matter how idealized, to reduce the entropy of a system to its absolute-zero value in a finite number of operations.

LawsofPhysics's picture

I approve of this message.   (good thing "might makes right", because nobody it getting out alive)

NOTaREALmerican's picture

Have you written a paper about the effect on the 3rd law of thermodynamics by the 1st law of bullshit?  

SheepDog-One's picture

Yes but the laws of thermodynamics apply only to closed systems, and the Fed is clearly a double ended asshole.

NOTaREALmerican's picture

Nothing matters until Global Death Cross is dropped, live, into the stadium from the Hindenburg Omen !

Ness.'s picture

PPT doesn't give a flying fuck about HY Credit.  If today's reaction in the equity markets (dow +130)/bonds (ZNU4 -4.0) markets doesn't convince you - nothing will.

Laughable Man.  Ha-ha!! ~ Jesus Quintana


TabakLover's picture

Sweet Jesus.......the day this Rube Goldberg chewing gum and bailing wire contraption the Fed has built comes apart........is gonna be so much fun.

Dr. Engali's picture

It's amazing how the fed can let a little air out of the bubble without crushing the whole system. Small caps getting a little frothy? Start singling out small caps in your speeches. People reaching for yield?........ Start talking about junk bonds. The central planners clearly have things under control....... For now.

ekm1's picture

It is a matter of capability to control digits on computers.

Not that difficult.

NSA can do the job.


Issue is that the longer congress tells the Fed to control digits on computers, the faster wold will abandon USD which is under way


Order from congress and Military coming soon to crap the whole thing, otherwise USD is doomed.

White House is becoming irrelevant slowly

NOTaREALmerican's picture

That's an interesting theory,  but...   


I can't really buy into the "concept" that Congress actually knows much more beyond fornicating-harlots on the (R)etard side and global-warming on the (D)umbasses side.   These guys are just sociopaths and you don't have to be all that sharp to actually bullshit dumbasses, you've just got to have the ability to create bullshit to get elected.  

Now, if you had said:

Order from State-Department and Military coming soon to crap the whole thing, otherwise USD is doomed.

White House is becoming nervous

THAT would sound better.

max2205's picture

Funny how small caps are now defined as a market cap under 50 billion

Dr. Engali's picture

"Order from congress and Military coming soon to crap the whole thing, otherwise USD is doomed."

Beware of the imminent comments. We all know how hard that is to predict.

ekm1's picture


Read this.

If russians could have hacked Nasdaq, NSA as the defender can and is hacking Nasdaq by order of Congress and White House.

SheepDog-One's picture

Looks like the banksters are desperate to get Russia to do something to us so they can have cover for this shitstorm coming.

pakled's picture

Translation. They are painting themselves into a corner...



The entity involved is the Fed

the paint used on the floor is red

white is the color of their shoes

sooner or later this fight they will lose.

A strip search will reveal the stain

protests of innocence will be in vain

orangegeek's picture



the Fed is cornered


keep your bonds folks

ekm1's picture









This can theoretically continue forever, until the world no longer uses USD and western world becomes 4th world

NOTaREALmerican's picture

Yeah,  but timing is everything.   Remember the Weapons of Mass Delusion?    Every hacker on the planet wants to hack NASDAQ.

BullyBearish's picture

Scary thought...you are only one little key click away from having all your assets at financial institutions DISAPPEAR forever...poof, it's gone...what Mommy are you going to run to?

tc06rtw's picture

It'll be O.K.
— they can just do a "System Restore" !

tc06rtw's picture


                  (if they don't use Macs)


lasvegaspersona's picture

suddenly there will be cheaper funding for these companies. Failure of the market is not an option this time...