Junk Contagion Spreads: Investment Grade Bonds Plunge To 2-Year Lows, Treasury Liquidity Collapses, CLOs Next

Tyler Durden's picture

Just as we warned, the collapse of the high-yield market has spread contagiously to the investment grade market as selling begets selling and redemptions need to be met from what you can sell, not what you need to sell (but can't). LQD (the investment-grade bond ETF) is getting hammered today, breaking to its lowest in almost 2 years.


As Europe closed, HYG managed to stabilize but the selling accelerated in LQD (the investment-grade bond ETF)...


Cracking LQD below recent lows to 2-year lows...


Catching down to HYG's weakness...


And while the storm that is rocking junk, and has now moved on to the investment grade space has not yet roiled government bond prices, it appears to already be doing a number on the liquidity of the most liquid, on the run security, the 10 Year government bonds which as the following chart from Stone McCarthy shows saw the 10-year trading "extremely special", at -235 basis points, the most negative it has been since the summer of 2014, suggesting that liquidity shortages are now manifesting themselves across all fixed income markets.


Finally, just as with the bundling of subprime mortgage debt, so "bundles" of corporate debt are in trouble this time...

CLOs Hammered as Energy Rout Plays Havoc With Other Debt Markets


The bust in commodities that’s roiling junk bonds is also taking its toll on funds that bundle loans used to finance buyouts.


The riskiest slices of collateralized loan obligations raised after the financial crisis plunged 9 cents on the dollar since September to about 58 cents at the end of last month, down from 84 cents a year ago, according to JPMorgan Chase & Co. Intensifying price declines in recent months have led to one of the "more challenging years in recent memory," JPMorgan analysts Rishad Ahluwalia and Jacob Kurosaki wrote in a Dec. 11 note to clients.




“The price declines are alarming and worrying," Ahluwalia, JPMorgan’s head of global CLO research, said in a telephone interview.

Finally, why is the contagion spreading? Because as we noted earlier today, when the dreaded "gates" arrive you sell what you have to: "One of the sad side-effects, is successful strategies, with liquid investments that are built for volatile markets and have no gates, become the piggy-bank for everyone that needs cash. Investors end up liquidating the good ones and are forced to keep the bad ones"

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junction's picture

Party time! Let's watch the fireworks.

Money Counterfeiter's picture
Money Counterfeiter (not verified) junction Dec 14, 2015 1:43 PM

QE 3 tr.  Moar!

Captain Debtcrash's picture
Captain Debtcrash (not verified) major major major major Dec 14, 2015 1:49 PM

Call it what it is a possible CRITICAL MASS DEFAULT!

38BWD22's picture



I read, a long time ago here at ZH, that the US Treasuries market is much bigger and more important than STOCKS.

The 10-Year is down hard today.

Beware.  Bring some of your assets closer to your own hands.

eatthebanksters's picture

So the money that can escape goes elsewhere...some of it pumping up the equity bubble...Wow, this is not going to end well when the musical chairs stop.

El Oregonian's picture

More like "We can Groan out of it"...

mtndds's picture

C'mon guys, you all know this is TRANSITORY.  Janet Yellen even said so.  When HOUSING PRICES take a shit is when I know things are getting serious.  Until then its PARTY TIME!!

mkkby's picture

And housing prices won't drop quickly unless rates rise rapidly, as in several percent in say 2 years.  What ever the fed decides this week, any increases will be VERY VERY gradual.

MalteseFalcon's picture




Hah, made you look.

hobopants's picture

Well this looks promising. Methinks the selling in gold and silver may not be business as usual, Methinks some up high are selling the kitchen sink to stay afloat.

Hold fast...

NEOSERF's picture

As I remember it happened in 2008/9 as well...as ZH just pointed out, everything good gets liquidated to try to prop up the bad until then it becomes just liquidate everything to try to get to the sidelines with any kind of cash you can.

mkkby's picture

They didn't say that AT ALL.  When you have a margin call, cash must be raised somehow. Now.

The illiquid junk bonds that got you in trouble cannot be sold -- either no bids or very low.  So you have to keep the junk and sell your good stuff.

DirkDiggler11's picture

Quick, send the little Dutch Boy Janet Yellin' to put another appendage in the dike....

Cautiously Pessimistic's picture

I think you spell it DYKE, not di....  oh wait, you meant like a wall that holds back water.  I thought you were talking about.... oh, nevermind.


_ConanTheLibertarian_'s picture

This is getting ugly real fast. They have lost control.

Cangaroo.TNT's picture

If 8 years of ZIRP & NIRP, nearly if not 100 interest rate cuts, and outright panic, flipflopping and lies by the world's central bankers has taught me anything, it's that TD & ZH is wrong and everything is A-OK.

NEOSERF's picture

Need to turbocharge the "whatever it takes speech" and have it ready...perhaps a mash-up of "Make No mistake about it" and "We have the Right Stuff" will set this on an up course for another 4 years?

U4 eee aaa's picture

It will be interesting to see how they fit all those elephants through those teeny, tiny volume doors.

Time for the penny bids folks. Anyone have some good penny bid candidates for when this all begins to panic flush?

Winston Churchill's picture

That door is to the elevator shaft.

_ConanTheLibertarian_'s picture

Oh yes! "The Towering Inferno" comes to my mind. Still one of the best disaster movies IMHO.

mkkby's picture


Some resting bids 14.9% below market.  When the HFTs dropped all bids and flash crashed, didn't the 15% or larger drops get cancelled?

Bastiat's picture

Bring out the gimp (Yellen), again!

nmewn's picture

Timmy Geithner, where is Timmy Geithner?! He's the only one who can save us now!!!...lmao!

Bastiat's picture

PPT lifting offers like Loius and Billy Ray?

Francis Marx's picture

My yesterday comment questioned if the BB bonds will soon follow, being the rating agencies are corrupt. (manty BB really being CCC)

firstdivision's picture

AAA as well, but who cares, its just  money.

assistedliving's picture

and on the other side WMT confirms @ $59.  Six months ago my JPM Acct Mgr said i had to buy at $70 cuz $80 a lock by Y/E

Bill of Rights's picture

Thank god the FED has $4 trillion laying around to rescue this mess...Oh wait.

Bastiat's picture

They do "have this thing called a printing press," to quote the great Bernankster.

Dr. Spin's picture

This fits the next three days perfectly.

Welcome to the dark carnival.  The Great Milenko: (< 2 minutes)


Thanks to the Insane Clown Posse


Spoctor Din

Bush Baby's picture

They have their phone and their print button

katchum's picture

So are you saying the bond bubble is starting to implode?

Dr. Engali's picture

This is not a liquidity problem, it's a pricing problem. The fed has distorted prices to the point that there are no actual buyers at these prices. There is plenty of liquidity if markets are allowed to find their natural bottom.

Bill of Rights's picture

Russia is not playing in the " GLOBAL " sand box so the artificial suppression is boiling over for sure.

kralizec's picture

Many natural bottoms are hurting...most are not yet aware of it.

saveUSsavers's picture

The media goon parade of Fed "ONE AND UNDONE" to the rescue?

I AM SULLY's picture
I AM SULLY (not verified) Dec 14, 2015 1:50 PM

Didn't Ben Bernanke "save the world" before?

(maybe he can save us again?)

(and give us a reach-around ...)

Bastiat's picture

Maybe Paulson can come up with 3-page coup document granting absolute monetary power and immunity--hell just use the old one and change the dates.

Lost in translation's picture

There are a lot and I man a LOT of crooked bankers, politicians, and freeloading do-nothings that will have to be wiped off the earth via economic collapse or war - or BOTH - before anything will ever get any better.

I'm not a religious guy but isn't that what happened with the Flood?  God looked and saw only assorted Jamie Dimon's and George-Soros-types, and decided to reboot creation.  Once the bad apples were gone, things started looking up, relatively speaking.

This present, evil world shouts to the Heavens for a massive wipe-out/clean-up/start over.  The scum among us can't be reformed, and will never change their ways.

Sorry but there it is.

Wahooo's picture

Who needs Satan when you have giys like Dimon and Blankfein?

Hapte's picture

From whence is their power derived?

MillionDollarAnus's picture

Finance majors and accounting gimmicks do not equal satan. Go talk about the devil on a religous forum where someone cares.

Hapte's picture

Where might I find this "religous" forum please?

jcdenton's picture

No, just evil men ..

But from whence evil men come?

This planet is roughly 498 years away from a most important anniversary ..


Think you can express things better than this Augustinian monk? (Who so happened to be also a trained secular lawyer)