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Did Something Blow Up in Junk?

Tyler Durden's picture




 

Submitted by Jeffrey Snider of Alhambra Investment Partners

Did Something Blow Up in Junk?

There isn’t much as far as confirmation, but it increasingly appears as if “something” just hit the triple hooks (CCC) in the junk bond bubble. At least as far as one view of it, Bank of America ML’s CCC implied yield, there was a huge selloff that brought the yield to a new cycle high (low in price) above even the 2011 crisis peak.

Now, this had occurred before on August 13 amidst the growing carnage in the “dollar” run through the PBOC and China. The published rate for that day was just over 16% and a similarly huge jump, but that was quickly revised (no reason given) to actually less than the day before. Further, that pricing revision applied to BofAML’s Master II HY index, as well, which had also been initially published in an explosion that day only to erased quickly after.

This time, the CCC index is by itself in showing “something.” Neither the Master II nor the S&P/LSTA Leveraged Loan 100 are following suit. Whether or not that suggests another pricing problem isn’t clear, but the fact that the CCC index actually surged Monday to 16.61% and was reported again yesterday at 16.60% begins to indicate this was an actual trading outcome. In other words, as junk bonds have been the leading edge to the domestic end of the “dollar” run, this demands close and ongoing scrutiny in light of a potential escalation.  After all, this is just another indication of how advanced the deterioration has become, when the “usual” carnage and selloff is no longer noteworthy, giving way to only the (possibly) spectacular.

 

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Wed, 12/02/2015 - 20:03 | 6868442 Government need...
Government needs you to pay taxes's picture

Gonna need the plunge protection team.  For your safety!  Once they take your assets away, you wont ever be exposed to market volatility again.  MyRa, MyRa, how I love thee!

Wed, 12/02/2015 - 20:05 | 6868456 BlueViolet
BlueViolet's picture

Something financially WICKED this way comes >> http://bit.ly/1KogtGi

Wed, 12/02/2015 - 20:17 | 6868513 janus
janus's picture

https://www.youtube.com/watch?v=9qVz0aUXLEA

here we go!

somebody say HO!

we dont' need no water/

let that mother-fucker burn/

burn, mother-fucker, burn/

the roof, the roof/

the roof is on fire,

janus

 

 

Wed, 12/02/2015 - 21:03 | 6868682 johngaltfla
johngaltfla's picture

BULLISH!

Time to short the VIX again. :)

Wed, 12/02/2015 - 21:51 | 6868836 johngaltfla
johngaltfla's picture

Here's your blow up tied to this story. The banksters are getting ready to harvest every dumb ass sheeple in this nation:

While One Hand Distracts with California Terrorism, S&P Downgrades Every Major US Financial Institution
Wed, 12/02/2015 - 22:08 | 6868887 NoDebt
NoDebt's picture

I want to see the default rates on those triple-CCCs.  Junk bonds went on a tear after the 2008/2009 crash because despite the dire state of the economy and finance in general, their default rates were near historical lows.  That's one reason I rode the high yield bond train for almost 4 years after that (posted on ZH when I exited my massively overweight position).

Show me the defaults.

Wed, 12/02/2015 - 22:23 | 6868934 Save_America1st
Save_America1st's picture

well, you know...it's pretty much just about that time again. 

tick-tock...tick-tock

Keep stackin' that cheap phyzz, bitchez.  Not too much longer now...tick...tock....tick...tock...

Wed, 12/02/2015 - 23:09 | 6869108 Stuck on Zero
Stuck on Zero's picture

This is a fabulous investment opportunity.  Sell all that worthless metal and buy junk bonds. What could go wrong?

Thu, 12/03/2015 - 11:58 | 6870824 Spigot
Spigot's picture

Junk ran up after it did a face plant, same as stawks. Depends on when you start your chawt.

Wed, 12/02/2015 - 22:24 | 6868938 janus
janus's picture

Holy shit, Johngalt...TD, please investigate the article attached to johngalts post.  BBB @ bofA?  All of em!?!  

If past is prologue, looks like this signals low single digit vix and s&p to infinity...but this ratings hacking is premised on the expectation that the fed DOESN'T support the bigs. 

Sell across the entire curve now...2016 will go down in infamy.

I just felt a shiver of fear,

Janus

Wed, 12/02/2015 - 23:40 | 6869185 johngaltfla
johngaltfla's picture

I'm too tired to care tonight, but when I get up in about 5-6 hours, I'll check out the Jan, Feb, Mar 2016 SPY options....plus any currency related plays. One can make billions on being on the right side of a EM currency collapse with USD rally.

Thu, 12/03/2015 - 00:35 | 6869332 janus
janus's picture

I'll still be driving at that point, and I am interested...particularly in em/USD pairs.  My guess is braz-rial is fucked.

Thanks,

Janus

Wed, 12/02/2015 - 22:31 | 6868958 NoDebt
NoDebt's picture

Kudos, johngaltfla.  Tylers should pick up on this.  Given they were all on credit watch negative to begin with I gues it shouldn't be all that shocking, but still the timing of the announcement is very interesting.

Wed, 12/02/2015 - 22:53 | 6869048 Xatos
Xatos's picture

Wow, thanks for sharing John. ZH + your link made for one hell of an article. 

 

ZH, pick up on this article!

Wed, 12/02/2015 - 21:33 | 6868794 LooseLee
LooseLee's picture

Dollar to a donut your down-voters are card carrying members of the Pinko Fascist Commies---soon to be hanging by ropes from lamp posts 'round the world.....

Wed, 12/02/2015 - 20:47 | 6868632 Noplebian
Wed, 12/02/2015 - 20:03 | 6868453 Slimjimmy
Slimjimmy's picture

Junk bond owners are already dead meat. Only question is when they figure out it's only getting worse.

Thu, 12/03/2015 - 01:40 | 6869157 stormsailor
stormsailor's picture

winner winner chicken dinner

Wed, 12/02/2015 - 20:15 | 6868506 two hoots
two hoots's picture

I have no idea of what any of that means?  It sounds bad, but what isn't?

Wed, 12/02/2015 - 20:23 | 6868539 chunga
chunga's picture

Me neither, but is hasn''t happened since....gulp....2011! What that means is for the expert-tards to fugure out.

Wed, 12/02/2015 - 21:41 | 6868811 nmewn
nmewn's picture

Somebody is taking Yellens comment about raising interest rates seriously and was over exposed chasing yield.

Hey! A .25% of a few billion here and a .25% of a billion there and pretty soon we're talking real money! ;-)

Wed, 12/02/2015 - 22:07 | 6868885 chunga
chunga's picture

Does that mean somebody gambled and lost a lot of somebody else's money but did fine personally as a result of fraud?

Wed, 12/02/2015 - 22:27 | 6868945 nmewn
nmewn's picture

The latter.

If I were a gambling man (lol) I'd wait till a junk fund in the 401K did the distribution at the end of the year, jump it (modestly) and then sell it the first time it turns south for a tax free capital gain.

But I'm not, anymore ;-)

Thu, 12/03/2015 - 00:18 | 6869286 chunga
chunga's picture

Well if it turns out this is an isolated incident of financial fraud, hopefully the media will be delicate about releasing the perp's names. It's not nice to promote racist stereotyping.

Wed, 12/02/2015 - 22:17 | 6868908 Retired Guy
Retired Guy's picture

"What does 16% interest mean?"

In the old days it meant potential bond buyers consider CCC bonds very risky. They therefore demand a big discount before they buy. With that discount if the bonds get paid back the buyers get a nice reward for taking the risk.

Today it means the market is actually working for a change. It also means that CCC borrowers probably won't be able to borrow again until they get their act together and raise their rating. As it should be.

Wed, 12/02/2015 - 20:23 | 6868537 Lokking4AnEdge
Lokking4AnEdge's picture

There are over $2Trillion in junk bonds issued since 2010....someone is going to pay......(or not get paid....).....

Wed, 12/02/2015 - 20:28 | 6868559 logicalman
logicalman's picture

You can be pretty confident that those who end up paying are not the ones responsible.

Same old same old.

 

Wed, 12/02/2015 - 20:31 | 6868566 sun tzu
sun tzu's picture

Did you include China? I would expect they issued more than $2 trillion by themselves.

Wed, 12/02/2015 - 22:58 | 6869074 Salah
Salah's picture

Offshore-Offshore-Offshore ....Oh, the glories of that $11 TRILLION US Dollar carry-trade (now collapsing)

Wed, 12/02/2015 - 20:27 | 6868556 stocktivity
stocktivity's picture

It's all Bullshit!!!   Every fucking day for 8 years something always sounds bad enough to send the markets over the Cliff and for 8 years the market is up almost daily.

Wed, 12/02/2015 - 20:31 | 6868565 logicalman
logicalman's picture

If you are writing the rules of the game, and can change them whenever you feel like, you can keep things going for quite a while.

Patience is a virtue, or so I've been told.

 

Wed, 12/02/2015 - 20:55 | 6868642 . . . _ _ _ . . .
. . . _ _ _ . . .'s picture

This climbing rope has never broken, therefore it never will.

There's a soft spot in the core, there's slippage on one end, and the sheath is frayed.

Climb on.

Thu, 12/03/2015 - 00:13 | 6869268 Implied Violins
Implied Violins's picture

Yup. Even condoms can't last for eight years. Careful climbing that hill...

Thu, 12/03/2015 - 09:00 | 6869989 herkomilchen
herkomilchen's picture

Yeah, but the problem is our wealth and earnings are constantly diminishing while our needs for wealth and earnings are constantly progressing.  We are getting older yet have ambitions to fulfill while we are still on earth.  The kids need new braces, the wife wants to own a house, we need to provide for our own health care and retirement, etc.  So getting off the rope and just standing still is the same as moving backwards.

It's not enough to repeatedly point out the fraying of the rope.  ZH needs to switch more into the business of strategizng how to climb up a fraying rope, i.e. how to manage risk yet still play the cards we're dealt so as to be able to still move forward and have a life.

Fri, 12/11/2015 - 18:41 | 6912278 Crocodile
Crocodile's picture

The only sound advice to solve all those problems you will hear and do need, but do not want to hear...period!

 

16 For God so loved the world, that he gave his only Son, that whoever believes in him should not perish but have eternal life.


17For God did not send his Son into the world to condemn the world, but in order that the world might be saved through him.

18 Whoever believes in him is not condemned, but whoever does not believe is condemned already, because he has not believed in the name of the only Son of God.

19 And this is the judgment: the light has come into the world, and people loved the darkness rather than the light because their works were evil.

 

People earn their way into hell by committing the greatest sin; rejecting the FREE GIFT; like a doctor who has a cure for your terminal disease and you spit in his face, deny you have the disease, then walk away to die.  Foolish!

Jesus answered, "I am the way and the truth and the life. No one comes to the Father except through me.

 

www.gty.org

Wed, 12/02/2015 - 20:33 | 6868568 hairball48
hairball48's picture

If junk bond yields continue on up this time, it might make the main stream news---maybe...

The companies who won't be able to roll their debt will default, laying off people. I'm thinking energy type companies that are loaded up with debt. The ones like the frackers who need $70,80+/bbl oil to survive. Crude is around $40/bbl now and probably headed lower(imo). Their hedges, if they had any,  at $70/bbl or whatever are disappearing. And so I believe the only time this makes MSM news is when people end up out of work in significant enough numbers. Otherwise nobody will give a shit....and who knows? maybe not even then.

 

Wed, 12/02/2015 - 21:30 | 6868785 Uchtdorf
Uchtdorf's picture

We've already got 94 million working age Americans out of work, but it's ho-hum to the sheeple and the mass media rarely mentions it. FORWARD!

Thu, 12/03/2015 - 00:39 | 6869346 lincolnsteffens
lincolnsteffens's picture

The sheeple don't know because the TV didn't tell them. Will miracles never cease at only 5% unemployment! I heard it on TV.

Thu, 12/03/2015 - 10:02 | 6870170 Ides of November
Ides of November's picture

Hey hey hey!! I just heard some important news - that guy with no legs got convicted of murder for shooting that blonde model!!!

And you say the MSM dint tell people what's going on in the world!! Shame on you. Shame on you!!

Wed, 12/02/2015 - 20:35 | 6868586 Raymond_K._Hessel
Raymond_K._Hessel's picture

true weighted average maturity and duration could be plotted and you can predict the funds that fall first, right.

Have these and other metrics changed in the ccc slop since oul fell?

By the way - this is murky writing, man.

Wed, 12/02/2015 - 20:38 | 6868602 Fish Gone Bad
Fish Gone Bad's picture

HYG isn't looking as sick as it did in 2011. 

Wed, 12/02/2015 - 20:48 | 6868637 Herdee
Herdee's picture

Don't worry,Draghi will come out big tomorrow.The Euro is the new funding currency for zero percent borrowing.Another trillion more to the rescue,it's his turn.Gotta love borrowing at zero if you are filthy rich,the carry trades are easy pickins.

Wed, 12/02/2015 - 21:04 | 6868687 Babalooee
Babalooee's picture

"Doom porners junk blows" is another alternative for the headline

Wed, 12/02/2015 - 21:33 | 6868795 ThrowAwayYourTV
ThrowAwayYourTV's picture

This is all we need to know.

https://youtu.be/8GP87dgTqF8 Nuff said!

Wed, 12/02/2015 - 21:35 | 6868798 Jena
Jena's picture

But San Bernadinooooo

Wed, 12/02/2015 - 21:52 | 6868839 goldstandard
goldstandard's picture

Yeah, something blew up..........10 Biggest Wall St. Banks Now Facing Legal Action for Price Fixing $320 Trillion Derivative Market.

 

http://www.zerohedge.com/news/2015-12-02/did-something-blow-junk

Wed, 12/02/2015 - 23:22 | 6869143 jm
jm's picture

Yields across the space are elevated but proper pain is confined to energy and materials.

Wed, 12/02/2015 - 23:43 | 6869191 Ajax_USB_Port_R...
Ajax_USB_Port_Repair_Service_'s picture

Junk? As of today, Illinois has the lowest credit rating of any state in the nation. Way to go Illinois!

"Both Moody's and S&P said they are troubled by Illinois' failure to balance its budget and strengthen government pension systems, although a tax increase and other measures have helped." Helped? Not much.

Thu, 12/03/2015 - 00:06 | 6869251 tommylicious
tommylicious's picture

FUK DEY AYSS!!!!!!!!

Thu, 12/03/2015 - 00:07 | 6869254 the grateful un...
the grateful unemployed's picture

QE whatever buy junk with both hands!!!

Thu, 12/03/2015 - 08:42 | 6869959 herkomilchen
herkomilchen's picture

IMO, much of Fortune 50 is now junk-like given the stratospheric debt/earnings ratios.  Given officially declared "junk" company debt is rising in yield to reflect true risk, i.e. are more appropriately priced, then if any of them are relatively debt free, and make inputs to life essentials like cheap food, clothing, medicine, or toilet paper, then their debt might soon become acceptable to buy and hold to maturity as one part of a balanced portfolio.

Thu, 12/03/2015 - 03:02 | 6869587 azusgm
azusgm's picture

Rather than the junk market, the TBTF downgrades may be tied to the derivatives.

If Ma Yellen gets her hike, aren't the interest rate swaps going to cause a world of hurt? (Asking an honest question.)

Scroll down to the bottom of the first page of this PDF and look at the impressive reallocations. Looks like everyone ran to one side of the boat.

http://www.occ.gov/topics/capital-markets/financial-markets/trading/deri...

Any thoughts?

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