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High-Yield Bond Funds Smashed With Record $7.1 Billion Outflows
High-Yield bonds funds saw record outflows of $7.1 billion this week - the fourth week running - as the slow-motion train crash in credit starts to accelerate.
As Forbes reports, the huge redemption blows out past the prior record outflow of $4.63 billion in June 2013. The full-year reading is now deeply in the red, at $5.9 billion, with 43% of the withdrawal tied to ETFs.
Simply put, everyone in the bond market knew 'not' to sell because liquidity is simply not there; but game theory's first mover advantage finally broke as retail investors run and create a vicious cycle of 'liquid' ETF selling forcing 'illiquid' underlying bond selling... just as we warned here and here.
Why should equity investors care? See chart below...
Bond managers are reaching desperately for protection in the CDS market - which is now at 6-month wides - but in the end are forced to liquidate holdings as ETF flows dominate...
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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Finally, as we concluded previously, there is little that the dealers can do if the selling continues as 'any' credit risk positions are unwound. The problem is that the Fed's dominance of the market and unintended consequences of controlling the repo/shadow-banking system have left bond markets more fragile than they have ever been.
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We await the Fed's decision on applying money market "gate" rules to high yield funds... it's for your own good!!
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BOOOM!!
This crash is going to be awesome!!
More awesome if Israel would go into non-existence
Nation-states have never existed, except but in the mind.
So can I just refer to them as the bastard-state?
Can I refer to the Vatican as a pedophile state?
If so, Which is worse?
And the United States as the Retard State
Absolutely on both accounts. Of course emphasis on the Vatican being the pedophiles, not to mention blood suckers
London.....no...Washington.....no....London.....no....Washington....no
https://www.youtube.com/watch?v=FONN-0uoTHI
It's those fifty year bonds crowding out the market, isn't it?
Just wait until your Myra bonds become perpetuals.
On a long enough timeline ,they will never be redeemed.
Yet SJB, the high yield short ETF is right around its 52 week low?
You must be crazy trying to make sense of this 'market'.
Low yield bonds seem OK for the time being, but my vigilance antennae are up and operational.
You forgot the crack-up part, but first Yellen needs to have a small taste of deflation. Pedal to the metal, BITCHEZ!
Bullard meant high yield in his 'sell bonds' recommendation, joining Yellen's small cap dissing in another Fed victory.
Up next: Dudley begins coverage of the Utilities sector with a "Hold" rating.
sheesh ...to think somebody some time ago said the subprime crisis is contained.
Better Call Bernanke!
That mofo could scheme a way outta this. Viva Bernanke!
Has anyone else Noticed that EVERY Time they switch Fed Heads TSHTF????
By friday all will be forgotten and next tuesday record highs.
Seems we need something bigger to fill the Yellen spread.
Try Benankes bald head.
Reminds me of the animals running away from Yellowstone Natl. Park. The supervolcano is about to blow, the scientists and .gov know it and are keeping their mouths shut, but the animals know and they're running like hell. What the animals don't realize is that there is nowhere to run to that Yellowstone blowing won't destroy.
Between Yellowstone, Fukushima and Plum Island/Ft. Detrick, the Georgia Guidestones were off by a solid 500,000,000.
We're going to zero.
soon the Fed will create yet another facility for high yield fund managers and ETF's to sell to...all in the name of saving the system
High Yield Liquidity Auction Facility
HYLAF (pronounced 'high laugh')
one can hear one of those after taking a bong hit too
holy piss! tomorrow should be the run for the doors scenario.
I always thought Bond investors were more rational and less emotional than retail stock investors. So wait......if this is what the bond guys do to their ETF's what in the world is it going to look like when retail exits THEIR ETF's ? IWM SPY QQQ
This is going to be awesome. Not even going to get sucked into the UVXY uppy down sucker bet either, just going to sit there from the sidelines and watch this all go to hell.
So when the SHTF and stocks crap out again, how does Obama spin it to be Bush's fault again?
It might soon become apparent the economic efficiency of credit is beginning to collapse and the additional money poured into the system coupled with lower rates can no longer drive the economy forward. When this happens we are at the end game.
At some point the return on loaning money is simply not worth the risk! Why do you want to loan money if most likely you will never be repaid or repaid with something that is totally worthless? When this happens the only safe place to store wealth will be in "tangible assets" and the only lenders will be those who print the money that nobody wants.
The collapse of credit can pose major problems such as what we saw when many sellers were forced to demand payment up front before shipping goods in 2008. More on this subject below.
http://brucewilds.blogspot.com/2014/06/the-economic-efficiency-of-credit...