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High-Yield Credit Crashes To 6-Month Lows As Outflows Continue
We have been warning for a while that not only is the high-yield credit market sending a warning but that it is critical for equity investors to comprehend why this is such bad news. This week has seen exuberant equity markets start to catch down to high-yield's warning but today's surge in HY credit spreads to six month wides is a rude awakening. Between outflows, a huge wall of maturities (and no Fed liquidity), and corporate leverage, the reach-for-yield just became an up-in-quality scramble. HY spreads are over 70bps wider than cycle tights implying the S&P 500 should be around 1775. When the easy-money-funded buyback party ends, will you still be dancing?
High-yield protection is in huge demand - credit spreads surge to 6-month wides - implying a 1775 S&P 500.
As outflows continue to rise...
Outflows from high yield funds and ETFs amounted to $1.69bn this week following a notable outflow of $2.46bn last week and a $1.85bn outflow in the week prior to that. The last three weeks account for the largest outflows in HY this year. The outflows are likely a result of the selloff in high yield bonds in July, as flows typically follow return.
You were warned:
High-Yield Bonds "Extremely Overvalued" For Longest Period Ever
High Yield Credit Market Flashing Red As Outflows Surge
Is This The Chart That Has High-Yield Investors Running For The Hills?
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Between a sudden shift to a preference for "strong" balance sheet companies over "weak" balance sheet companies (the end of the dash for trash trade), and this rotation from high-yield to investment-grade, it is clear that investors are positioning defensively up-in-quality ending the constant reach-for-yield trade of the last 5 years.
Why should 'equity' investors care? The last few years' gains in stocks have been thanks massively to record amounts of buybacks (juicing EPS and also providing a non-economic bid to the market no matter what happens). This financial engineering - for even the worst of the worst credit - has been enabled by massive inflows into high-yield and leveraged loan funds, lowering funding costs and allowing CFOs to destroy/releverage their firms all in the goal of raising the share price.
Simply put - equity prices cannot rally for long without the support of high-yield credit markets - never have, never will - as they are both 'arbitrageable' bets on the same capital structure. There can be a divergence at the end of a cycle as managers get over their skis with leverage and the high yield credit market decides it has had enough risk-taking... but it only ends with equity and credit weakening together. That is the credit cycle... it cycles.
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Fuck me....all this horrible news and the spx is down?
WTF over
Scam alert yall
Tyler, it's the same text content every time. Can't we filter these pathetic fuckers?
Probably one guy changing names. He's gonna run out of money soon with what he's having to pay his sisters friend.
At least he picked a relevant username this time...
Averaging 15k what? Since you didn't include a ($) sign, I'll take that figure as 15k blowjobs.
I have dated her a few times, take my word for it, not worth the time.
Ill be dancing all night long. No money in these fools market.I am playing it safe in gold and silver and cash and when the piper plays his final toon Ill be ok. I learned in 2008 that gambling is for gamblers and you cant win when the dealers are all cheating.
if tyler pulled up that chart over the last 3 years, it would imply 1400 for spx.
Had drinks with a mid-50's guy yesterday afternoon (it was a Thursday, so it's cool), and he basically said he's dumping stocks if they drop 1% from here. I'm guessing he has a few hundred thousand in various funds. Purely anecdotal, but I'll bet there are a lot of guys out there like him who stayed long over the last few years, but who plan to dump at the first sign of trouble to protect their retirement principal. I suspect the Fed is aware of this and will do everything possible to prop it up (unless they've decided the time is right for a blood bath).
Eventually the buildings will have to come down, LTER. And imagine the complicated demo with all that asbestos. Wouldn't it make more sense to bring them down in a controlled way on our timetable? Heck, we might even get insurance to pick up the tab.
The lack of easy money is spanking some assets.
The great muppet massacre-coming soon.
nobody pays attention to the "check engine" light these days
Who needs to pay attention, when you've got NINJA car loans for anything with a pulse...
CAPM says a rise in the risk free rate causes all asset classes to lose value. It may be that an expectation of rising rates is causing the drop. Could also be the release of those Yellen upskirt photos.
-1 last sentence totally uncalled for
Wow! buzzsaw was actually offended by something crude and disrespectful.
Haven't seen that before. Did your wife assume your ID for the day?
I have a bunch of "cov-lite" notes. Does anybody want to buy them?? I'l give ya a good deal!
So is the deflation coming? Do I need to buy storable food?
NO. You need to have a boating accident first, then follow the blueprint from there....and get a spear gun.