Investment Grade Credit Risk Hits 2 Year High (And Why That's A Disaster For Stocks)

Tyler Durden's picture

Over the past few years three things have 'worked' - Buybacks, Biotechs, and Buying IPOs. Those days are now over...

We discussed IPOs recently... this is the worst year since Lehman...


Biotechs have imploded...

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But, by far the most important of all was the low-cost financing of float-reduction (buying back shares via releveraging)...


Investment Grade credit spreads are at 2-year wides, spiking higher in recent days, raising the cost of financing those record-breaking non-economic buybacks for even the most pugnacious CFO. As is clear above, with a lag (i.e. we borrow and then we spend) the cost of financing and the relative performance of firms buying back their shares is extremely highly correlated (and while correlation is not causation, we suspect in this case - from simple Corporate Finance theory - it is winking rather clearly).


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So, summing it all up...'Nothing" is working...


Charts: Bloomberg and @Not_Jim_Cramer

Bonus Chart: HYG leading Stocks down again...

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Jethro's picture

Don't worry! Jim Cramer will polish this turd shortly.

J Jason Djfmam's picture

I have a slightly used Turd Polisher for sale. Cheap!

Consuelo's picture

Careful there, turds actually can be polished...




khnum's picture

A polished turd is called a derivative 

KnuckleDragger-X's picture

IG bonds can go HY pretty fast and there's a lot of buyback paper out there.....

ShorTed's picture

I seem to recall a CDO mortgage tranche or a hundred going from AAA to junk in 1 fell swoop.  Are you suggesting this could happen again?

Unpossible, Barney Fwank told me it was all fixed.  Little did i understand then what he meant by 'fixed'.

Winston Churchill's picture

That would be crazy after all those harsh prison sentences handed out after last time.


Oh wait.......

aliki's picture

fed mandate #3: must keep SPY in the green by minimum 10% since bonds yield nothing for 7+ years and pension funds an 8% mandate

fed mandate #4: must get HYG north of 90.00 since that is the bogey between "all clear" and "oh shit". the longer we stay in "oh shit" territory, the greater the chances companies that were created the last 7 years (which never should have been created) go away. moreover, the illusion of the keynsian recovery folds and we see the economy for what it is; a stagnant, weak demand, highly indebted mess. ron paul tried. donald trump/carl icahn are gonna give it another crack before its too late.

Baa baa's picture

The PPT must be hard at work today. Surely ZH is not the ony entity with this information.

thunderchief's picture

With no stock buybacks, QE, nirp , zirp, this market will crash.


MrSteve's picture

....nirp, zirp, PERP; someday, crooks will go to jail

lester1's picture

The Fed is doing stealth QE via PPT !!


What's to stop them?

BullyBearish's picture

Check a monthly chart of HYG...looking a lot like it did in 9/11...October will be key

sandhillexit's picture

"What a shame, we can't hike rates.  But, we need to move these UST's at current yields,"  says Jake Lew.  "ideas?"

For me, that's it. The shortest distance between all the dots.   Shake the EM tree. again.  Find bombs in crazy places in peaceful Buddhist countries.  Panic the 50-yr-olds into rotating out of equities. Send scumbags like Icahn out to tell gpa in Florida that he doesn't want to be a frier, holding the bag while everyone else gets theirs out.   Propel commodity prices downhill, faster.  Rally the Dollar even when it hurts US private sector results.  

Maybe Russia has gotten the message...China has gotten the message...Germany has gotten the message.....Brazil has gotten the message, or not.  


lo574's picture

If you think high-yield is bad, checkout MLPs   Night....mare