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Junk Contagion Spreads: Investment Grade Bonds Plunge To 2-Year Lows, Treasury Liquidity Collapses, CLOs Next
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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Party time! Let's watch the fireworks.
QE 3 tr. Moar!
We can grow out of it. Right?
Call it what it is a possible CRITICAL MASS DEFAULT!
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.
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.
More like "We can Groan out of it"...
Burn baby burn
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!!
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.
http://i.imgur.com/Dx9ainI.gif
Look!
GREEN SHOOTS!!!
Hah, made you look.
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...
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.
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.
Quick, send the little Dutch Boy Janet Yellin' to put another appendage in the dike....
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.
This is getting ugly real fast. They have lost control.
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.
First slowly, then suddenly.
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?
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?
That door is to the elevator shaft.
Oh yes! "The Towering Inferno" comes to my mind. Still one of the best disaster movies IMHO.
@U4:
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?
Bring out the gimp (Yellen), again!
Timmy Geithner, where is Timmy Geithner?! He's the only one who can save us now!!!...lmao!
South Park does it best...
https://www.youtube.com/watch?v=cTl762MuXyc
PPT lifting offers like Loius and Billy Ray?
My yesterday comment questioned if the BB bonds will soon follow, being the rating agencies are corrupt. (manty BB really being CCC)
AAA as well, but who cares, its just money.
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
Thank god the FED has $4 trillion laying around to rescue this mess...Oh wait.
They do "have this thing called a printing press," to quote the great Bernankster.
This fits the next three days perfectly.
Welcome to the dark carnival. The Great Milenko: (< 2 minutes)
https://www.youtube.com/watch?v=M3SPIiS1rjg&list=PLR4tUHo6RuWgP1bpBf84Iy...
Thanks to the Insane Clown Posse
PLAY LOUD!
Spoctor Din
They have their phone and their print button
So are you saying the bond bubble is starting to implode?
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.
Russia is not playing in the " GLOBAL " sand box so the artificial suppression is boiling over for sure.
Many natural bottoms are hurting...most are not yet aware of it.
The media goon parade of Fed "ONE AND UNDONE" to the rescue?
Didn't Ben Bernanke "save the world" before?
(maybe he can save us again?)
(and give us a reach-around ...)
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.
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.
Satan is real.
Who needs Satan when you have giys like Dimon and Blankfein?
From whence is their power derived?
Finance majors and accounting gimmicks do not equal satan. Go talk about the devil on a religous forum where someone cares.
Where might I find this "religous" forum please?
No, just evil men ..
But from whence evil men come?
This planet is roughly 498 years away from a most important anniversary ..
http://www.truecovenanter.com/truelutheran/luther_trade_and_usury.phtml
Think you can express things better than this Augustinian monk? (Who so happened to be also a trained secular lawyer)
Yes and no ..
Just let the quads in derivatives unravel ..
It will flush out everything ..
The Nephilim (Titans / Giants) were satanic-human hybrids. Some do think the Sheldon Adelsons et al do have alien DNA. An entire different discussion. (See Dr. Michael S. Heiser)
To end this on an upbeat ..
https://app.box.com/s/hfgvcqg7gqh7i27at6sv53ywu87lwarp (Read Me First)
Perhaps a bit more on the 210+ days side of the spectrum, but it did happen before years end ..
Now time for some healing ..
So a rate hike to save face and QE to save banks? Glad to see that the money masters have full control over the planets destiny. It's where we're headed that concerns me.
This is not the government bond market disaster you were thinking of. /JEDI mind trick
Junk is the new subprime
"any American who gets SS will be required to Give Up their Gunz."
Imam Barry
"In Indonesia, where I come from, there is no such thing as Due Process.
Therefore, Americans will give up this Right., because I am a Constitutional Lawyer."
Michele and I cannot wait to put body parts of YT Americans on or Lenin Tree in December!"
Just to think there are some Americans who believe they have more education and knowledge than me is absurd!
I may not speak Austrian or know what a Corpse-Man is, but I know the English Language! I learned all I need to know in the First Grade in Indonesia!
Fed's going to double QE3 with QE4.
Their balance sheet goes from $4.5 trillion to $9 trillion next couple of years.
It's never payback the money just print down the debt.
"We must have a One - World Control under the B for IS."
"All currencies are Suspended TFN."
How hard would a downgrade of us treasuries hurt right now?
That's how you know it's rigged.
Perfect timing... No rate hike for you!
Data dependant!
Luckily the "safe haven" pet rock will protect us
J.P. Morgan analysts wrote that the three best leading indicators for recession have been credit spreads, the shape of the yield curve and profit margins.
Here are some signs of a coming recession.
1. Investors in high-yield bonds are expecting to see their first negative return since the start of the credit crisis in 2008.
http://www.marketwatch.com/story/deteriorating-junk-bonds-flash-warning-signs-for-stocks-2015-12-07?dist=afterbell
2. Factory orders continue to drop
http://www.zerohedge.com/news/2015-10-02/us-factory-orders-flash-recession-warning-drop-yoy-10th-month-row
3. Default risk spikes
http://www.zerohedge.com/news/2015-10-02/us-financials-default-risk-spikes-2-year-high
4. M&A set record
http://michaelekelley.com/2015/05/29/mergers-and-acquisitions-set-record/
5. Iron ore prices tumble
http://www.marketwatch.com/story/iron-ore-prices-keep-crashing-adding-to-global-growth-fears-2015-11-30
6. Baltic dry shipping index tumbles
http://www.marketwatch.com/story/shipping-index-falls-to-all-time-low-stoking-fears-about-global-growth-2015-11-19
Here is how to prepare.
http://michaelekelley.com/2014/10/16/8-things-to-do-when-recession-happens/
Here is how to get your mind off this stuff.
http://michaelekelley.com/category/humor/
Good luck!
Sell the good and forced to keep the bad is the formation of toxic waste. It needs a massive liquidity pump to arrest the trend and Fed is signalling other wise. As for the investment grade bonds, decline to past 2 year level is still a juice.