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This Is The Longest Streak Of High-Yield Outflows On Record (And Why It May Get Worse)
When we first brought the market's attention to high-yield credit's flashing red warning, it was shrugged off as unimportant by most - stocks are rallying so who cares (even though we explained in detail why equity investors should care). Now that the mainstream media has all become high-yield bond experts we thought it worth considering how much worse this could get. As Barclays notes, for those keeping track, retail funds have thus far seen 22 consecutive days of redemptions for a total of $16.9bn in assets - the longest streak in history and while the effect of retail selling on valuations has not been negligible, it has also not been proportionate to the magnitude of the outflows (yet).
In other words - the 2-3% drop in index prices is well short of the 6-7% drop one would expect from the outflows which suggests if selling pressure persists managers will be forced to sell their more illiquid bonds (having unwound the liquid winners) into a market that is as illiquid as it has ever been (for sellers).
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As we noted previously, 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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But something changed recently...
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.
Simply put, Jeff Gundlach was right.
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Of course we have explained this won't end well...
US corporates saw profit growth slow to almost zero last year and on an EBIT basis it has been flat for some time now. Earnings quality, rather than improving is actually deteriorating, as indicated by the increasing gap between official and pro-forma EPS numbers. As a consequence, following a long period of overspending and in the absence of a strong pick-up in demand, corporates will have to spend less and not more.
Finally, as a consequence of such anemic growth, corporates have been gearing up their balance sheets in an effort to sustain EPS momentum via the continuing use of share buybacks. With markets up substantially in 2013 executing those share buybacks has become increasingly expensive. Little wonder companies have to borrow so much to continue executing them.
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Is there a bond out there that isnt overvalued? all of them are priced as they are based on highly manipulated interest rates. loaning money to bankrupt govts or companies for interest rates lower than real inflation isnt going to end well
He who sells first sells best
Yet the high yield short ETF's have not moved?
The theater is burning and the few escaped. Good luck to rest of the investors!
Everything is going to start getting worse now. We reached Dow 17,000. The markets have peaked. Now comes the deflationary nightmare. Bitchez.
Very soon.
The Obama Depression is about to enter part 2.
why this news is important:
Its not so much about the end of kicking the can, its about a leg being broken: they are ceasing to have the ABILITY to kick the can
This isn't going to end well
It will, if you are short...the market that is.
Its the timing that's a bitch.
Yes, it is. Would be nice to get a bigger down draft in August & hit the top in October. It is what it is though.
Its the timing that's a bitch.
My last pay check was $9500 working 12 hours a week online. My sisters friend has been averaging 15k for months now and she works about 20 hours a week. I can't believe how easy it was once I tried it out. This is what I do... http://goo.gl/bhiamE
Tyler? Just take him out, please
get off this blog u ass...........
How many tricks do you do and exactly whats involved? Whips, chains etc?
arent the redemptions largly going into equities?
Be nice to see what's going on with HY mutual funds... too lazy to try to look into it right now, obviously a lot of these bonds are in hy funds - are the funds swapping out for security? I don't know.
All I know is buying long term debt is for 'tards.
Cluelessness of Zerohedge continues unabated.
Zerohedge still assumes that there is an actual market and all is interconnected as if there were free market.
Zerohedge still believes in ......cycles.
Let me tell what is happening:
A human made system stays up and goes down by humans.
If central command called government decides that they do not like cycles, then cycles are simply banished and economy become centralised. No credit needed, just food stamps and gov subsidies.
We are there.
Which of course leads to break down of supply chains, which is under way.
huh?
Otherwise known as communism.
not saying you are wrong, but pointing out that there are actual investors(people, not institutions) leaving these funds doesn't neccessarily mean any kind of cycle has to be involved. In fact, this type of article could prove you right. These types of outflows occuring while the bonds themselves still remain unrealistically priced could give yet another example of the fact that there is no 'market' anymore, and "someone" is propping them up
I suggest there are no markets at all any more. There are only gambles. All are government manipulated frauds. If you can invest in between the government manipulations you win. I suspect if you use any traditional templates you will lose.
EKM1
as long as this govt that you falsely presume to be omnipotent uses the framework of ursury and fractional reserve banking, there will be cycles.
They can be distorted, skewed, delayed and exacerbated. But not eradicated. Not unless ursury and leverage are both outlawed. period.
If anyone has been following ekm's posts, his analysis delves deeply into crisis at hand.
Critical thinking skills must be utilised to peel back the layers of subterfuge covering ongoing events.
Go For It EKM1 - Do Not Underestimate Your Enemy.
And what is the definition of insanity?
Electing bush and obama for a second term?
he just read 1984
THEOREM
If the financial system is allowed to go through a wipeout (and it will), then this will be a highly positive event for the real economy, employment and prosperity.
mushroom clouds before TPTB allow that to happen.
In which case construction , and the medical industry will boom even more. Go long on indoor hydroponic food also.
Aw that's just great! I love a happy ending. In other news Kim's ass got even bigger. Leading scientists are puzzled over how the rest of the matter in the universe is not being sucking by its gravitational mass. Next up, we'll speak with Stephen Hawking, no pun intended, about the meaning of nothing and why he should just shut the hell up. Okay, that pun was intended. You got me. And now the weather...
Que girl with immense boobs and tiny waist. Yay weather.
So you're saying it's different this time?
Not all all.
In communism we banished cycles until we ran out of food
"Zerohedge still believes in ......cycles."
Cycles are a mathematical fact.
"If central command called government decides that they do not like cycles, then cycles are simply banished and economy become centralised."
Cycles cannot be banished, as the laws of math cannot be banished.
So when all of this malinvestment leads to the break down of supply chains you are saying that is not the non-existent market reacting? I'm confused.
If somebody is selling, there has to be somebody on the other end buying. Even ZH has had many articles about the fallacy of "money on the sidelines". The only question is the price at which the transaction takes place. Which hasn't moved much. Which means they're just changing hands. Tell me who's BUYING at these still-elevated prices and I'm all ears.
Almost all ZH articles talk about outflow.
And .....where did the money go?
http://finance.yahoo.com/q/bc?t=5y&s=HYG&l=on&z=l&q=l&c=spy&ql=1
I dunno....if you pull these charts back far enough it just seems like business as usual.
Recycling, recycling, recycling to keep people busy, Fonz, as if there is something going on.
Until world actually drops USD entirely.
Watch out for executives lying dead on streets
http://seekingalpha.com/article/2375215-the-fed-to-pay-foreign-banks-to-...
Recycling and recyling Fonz, until central command says no.
As an example, that will occur for sure when Saudis would refuse to ship oil unless QE is fully unwound and an wipeout is engineered
well QE is just about unwound. Yields are dropping. Most big firms are skittish and have a decent amount allocated to cash and bonds. So yields are low. Stocks are taking a breather. Gas by me is down to $3.65.
Look if there really is some kind of back room war going on and the dollar loses then it's hyperinflation. If the dollar wins I think that means just more of the same. Other countries just continue to get crushed and suffocated due to lack of dollars.
No. Officially QE is being reduced, not unwound.
Unwound would mean selling of Fed balance sheet.
And no, QE is not being reduced, it has been increased via other central banks by use of unlimited currency swaps that nooooobody is talking about.
http://www.federalreserve.gov/newsevents/press/monetary/20131031a.htm
Hence, Financial Aggression, hence wars expanding around the world.
QE = Financial Aggression on world real assets.
World is responding with showing middle finger to Obama who has ordered QE
"The Canadian government confirmed on Thursday that it raised 1 billion Canadian dollars ($938.1 million) by reopening its December 2064 bond, in a move to lower borrowing costs.
Thursday's offering size was double the minimum amount targeted, a sign that demand was strong, as investors sought a haven against global market volatility amid growing concerns over the strength of the economic recovery in Europe."
The 50-year bond issue was priced better than expected to yield 2.76%. The bond carries a coupon interest rate of 2.75%."
Sure seems like same as it ever was man. Every countries borrowing costs dropping as their debt expands. Currencies all falling into lock step with each other...
What is doesn't say is who bought those bonds, investoers or bank of canada?
Secondly, manipulating money supply has got nothing to do improving the economy.
That has got nothing to do with costs of funding the govewrnment.
Government is funded by the output of the people, not by money it can create on computers
If people refuse to create output just because gov guarantees everything, then there is no funding.
In communism we had infinite funding with paper. We just couldn't produce enough food for everybody
when was any of this ever about improving the economy? This was never about improving the economy. The economy can not be improved. Between globalization and automation and crony capitalism etc etc...the economy is still right on it's natural path towards being obliterated. The only question is can we have a 1% world with the next 7-8% below them doing pretty well licking their heels and then a gigantic free shit army, or do we need ebola to take down 60% of the population.
:-)
i like both of yall, and im glad ekm is back(read comments a long time before i started posting, so i remember you from a while back), but don't you guys know each other, as in not just on here, so these posts with yall agreeing with each other are kinda pointless, since you could just have this conversation in person?
No, we don't.
are you referring to ekm and I? we have never met. Ekm is a good guy though, i have no doubt of that.
sorry, i thought thats who you were talking about when you said you talked to a person who had been banned from here. now i feel like an asshole
His name was francis_sawyer?
I hope it's central banks buying everything (not just sovereign debt). Means the price will never decline much, no matter how big the "outflow" from ETF funds.
Exactly.
Until world stops doing real trade with USA and the whole west
Misery, misery, misery
the misery(for the west, not just the US) is what will happen when people are no longer willing to give us real things in exchange for dollars we create out of thin air, billions at a time
already under way
That's what currency swaps with china are for
this is just curiosity, not defending the petrodollar scheme but...
How does this matter when the EU countries are still using dollars to buy energy, the saudis still only sell oil for dollars, and OPEC still deals in dollars?
World trade matters.
Once most of their trade is handled in non-usd currencies, barter, then dumping USD just becomes natural and swift, just baaam
"In communism we had infinite funding with paper. We just couldn't produce enough food for everybody".
So the lines for food indicated. Did you watch this first hand? Have you been thinking and reasoning about it since then?
Even the US has never provided enough food for everyone, even if massive amounts of food have to be thrown away to maintain that state. Millions of volunteers then participate in raising and distributing food at free pantries and kitchens. And as the US continues to master the art of producing food ever cheaper with ever less labor the whole country is gradually sickening on this nutritionless, poison-laden crap.
The deep politics and economics of food, food production and food scarcity is a whole fascinating subject. There's a whole literature which I've barely skimmed the surface of. But we still beat "communism" over the head because they failed on food production.
Experts say that it is not too late for the Earth to support its human population with nutritious food. And it's not rocket science. But it will have to be much more labor intensive to work. Which goes directly hard against the imperative of corporate capitalism, and against the communism that Stalin built whose imperative was competetion with capitalism.
http://www.federalreserve.gov/newsevents/press/monetary/20131031a.htm
Other central banks are getting dollars and buying USTs, so they can re-route USD to bank lobby in order to disallow defaults on swaps which are still ongoing and rampant.
That was the whole point of QE: Monetization of Gambling with Swaps
since the fed isnt subject to the FOIA they can create money, give it to some nation, anyone, i don't knoe who, but lets say belgium, and have them buy a shit load of USTs so it isnt the fed officially buyin them through QE? something like that?
correct
Any of those countries can do swaps and buy USTs
i get your point, and im not disagreeing with it, but the yen isnt the worlds reserve currency, and their bond market is even more central bank controlled and manipulated than ours, and yet it still exists, and is accepted in trade agreements as the currency as one of the worlds largest economies. unless and until the JBG collapses and is traded at its real value(a small fraction of what it is worth now) this ponzi scheme will continue.
There is nothing stopping them from doing exactly that, that I am aware of.
Even assuming that there were a low that would forbid it, then Obama would sign an executive order which Boehner and Reid would instantly approve and baaaam, all legal
The only law I'm aware of in this arena is one from the late 40s/early 50s that prohibits the Fed from buying US Government bonds directly from the Treasury. Buying from anyone else is fair game.
Leveraged dark pool funds.
When SHTF they crash everything, then get bailed out or it's "tanks in the streets".
Or executives dead on streets
Ill tell you. People who are able to borrow money at 0% interest and make risky bets, and if those bets go wrong, they will be bailed out at taxpayer expense because they are 'too big to fail', and the people who made these risky moves will still get their bonuses, and any penatly that is levied against them will be paid for by the institution they work for and their shareholders, which, in the end, really just means taxpayers
Bingo! Winner winner, chicken dinner!
If we could only convince the somnolent populace of the truth.
Yes -the buyers are highly leveraged computers. The buying and selling is pure manipulation. It will end very badly.
Yeah, but they're buying for less and less as the price drops. Good for them, bad for sellers. Losses are real, the positions don't just cancel each other out.
Not a fallacy. While there is a seller and buyer, the "new" money sets off a chain of more buying as those who sold, and were in the market already, will quickly use the funds to buy other stock. It will increase buying pressure and tend to lift prices over time.
Pension funds prolly.Or bagholders for short.
Technically, you are Mr. Taxpayer. Want fries with that?
Blow bubble, pop it. Blow bubble, pop it.
Remember doing that as a kid? Who could blow the biggest bubble?
The winner invariably had the bubble pop and stick to their face. Then they needed new gum.
New Gum? W T F. We couldn't afford new gum, so we just had to keep blowing with hair and eyebrows in it. Actually made it stronger with all the extra fibre. Sort of conditioned us for our teen years...finding that first hair in our mouth.
Screw stocks, bonds, and about every other "market". Physical Gold, Silver, Lead and food are my only "investments". Yes, the PM markets are rigged like a game of 3 card Monty, but they are rigged in MY favor.
Our corrupt ass Fed is keeping PM's on sale for an extended period of time, allowing me to sfock up ! Thank you Fed Chairmen, you magnificent stupid bastards !
Again "the only way to win is not to play."
This isn't what we paid the Government to do...but our job is to act accordingly not play pretend that somehow things would have turned out differently.
Non GAAP and underpaid criminal accountants fueled by cocaine and blow jobs by Banksters will save the day.
The fascist ruling oligarchy is out on the open but who licks their boots? Attorneys and accountants who have sold their souls.
Who licks their boots? JYAAP (Janet Yellen Accepted Accounting Principles) that's who.
and this effects me how?
Good the Central bankers are allowing everyone to get out in an orderly fashion as they buy up the entire planet with fiat. Wonderful.
I will see you guys on the other side.
I guess Draghi et al. need to step up to the plate soon to fill the vacuum... ("whatever it takes"). The ultimate unwind of the global bond bubble with artificially low interest rates across the yield curve (thanks printing presses!) will be the death knell of the current financial fiat ponzi system.
PS. Ah, forgot this... http://www.youtube.com/watch?v=anGXld-4hCA
Don't worry. TPTB have another system lined up after they crash this one. If you get the mark on your arm you shall toil, if on the forehead then your a boss. They have to crash this system in order to institute the new slave system they have designed. If you don't play, then, you might get a sore throat.
Every time retail sells/buys an asset in size, that asset goes up/down...
The ultimate holy grail of bubbles is the hyperinflation bubble .
And we are nearly there now .
The incomparable stupidity, OR genius depending where you come from, is the idea to destroy FICO scores.
What is currency worth when you lend it to an underachieving moron who cant flip burgers without burning his fingers.
How much do you value it at when the prospects of getting back are so slim.
Pretty much worth less in my estimation, so I would want a fucking load more of to offload to the next greater fool.
And by the way I will need a whole lot more of this worthless tat in my wallet before i get out of bed.
And you want to buy anything from me. from a can of beans to my fucking house, I will definately want more of this worthless tat.
Some desperate fools might sill be selling assets like beans and taking the crap in exchange but its starting now, and it will not take too long before it explodes.
They hid it massaged it lied about it and finally made it illegal to talk about it, but inflation is here and its growing and its growing far faster than many will believe.
Its the only bubble left in town and when all the other bubbles are popping like crackers on July 4th then this becomes the biggie.
As a matter of course I overcharge by at least 25 % and negotiate hard from that starting point.
And it gets easier, and when that gets too easy I will ramp prices up again by another 25%
High yield bonds just have more risk. A shift away from them isn't necessarily a negative sign for the economy.
Isn't this about the time when Martin Armstrong's Economic Confidence Model TM takes a nose dive all the way until 2020?
Actually, he had it peaking in 2015, then "look out below......"