The Global Fixed-Income "Blood Map" Of 2016

Tyler Durden's picture

For credit investors, 2015 was bad a year (for energy bonds it may have been the worst on record) culminating with the gating and liquidation of several credit-focused mutual and hedge funds.

However, judging by these heatmaps, 2016 is shaping up to be even worse.

The first chart below from Bank of America shows a YTD performance heatmap of all Global fixed-income performance. The variation in performance remains vast, but with plenty of areas still of "credit stress."  The one sector that is clearly working - for now -  is  sovereigns on the back of even more NIRP around the globe and $6 trillion in govvies trading with negative rates.


Unfortunately, for most other credit investors it has already been an miserable year, as the following Citi heatmap of YTD junk bond prices demonstrates.


But while junk is clearly a sea of red, what is most surprising is that in 2016 the worst performing sector on a relative basis is not high yield but US and European investment grade, as the contagion from HY spills over ever higher in the capital structure.

Behold: the US & Europe investment grade CDS blood map.


And here is the same for the entire world's IG CDS:


This is what Bank of America's Barnaby Martin says about this spillover:

We argued in late Jan that “stressed” high-grade names were trading very wide relative to the rest of the pack, and that this would make low-beta credits appear overvalued, leaving them at risk of repricing wider – in a kind of domino effect. We still see this as a big risk in IG and urge caution on low-beta credits.

For some IG investors it may already be too late. But before you dump those investment grade bonds and rush in junk on hopes the revulsion is over, read the following from another BofA analyst, Michael Contopoulos.

Couple a declining services sector with a manufacturing sector that is already in a recession and a declining global economy, and we continue to think high yield markets have substantially more downside ahead of them; particularly as non-commodity defaults pickup later this year.


Perhaps our greatest concern is that if we are correct on the fate of the high yield market and the broader US economy, the Fed has very little effective tools to combat such a scenario. With the fed funds rate at only 25bps and the Fed unsure if they are even allowed to implement negative rates from a legal standpoint, the only other tested instrument is a 4th round of quantitative easing. Except as we have seen in past QE rounds, the effects of repeated monetary stimulus have diminishing returns. Since Draghi applied the latest round of easing in Europe, volatility has actually increased. To this end we believe the path the Fed ultimately pursues is irrelevant to the credit market. In fact, we believe further stimulus would not calm the volatility in risk assets and may actually add to it as an acknowledgement of a worsening macro environment likely causes risk managers to dictate a dumping of securities and a hoarding of cash.


Source: Citi, Bank of America

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
-.-'s picture

Happy Birthday King Solomon

zorba THE GREEK's picture

Ideal asset allocation: gold, silver, guns, ammo, and an ample supply of
Good Barbados rum.

Mr.Sono's picture

All I see is red. Wtf, it's like communist ruling the stocks.

old naughty's picture

would you prefer blues then? 

let's bring back John and Dan.

847328_3527's picture

Folks on a fixed income, even those whose increase was linked to COLA [CPI] got creamed the last 10 years. Social security recipients got their faces ripped off with no increase in payouts while food, rent, etc soared. The Fed manipulated the CPI to be zero as the prices of essentials rose unabated.

glenlloyd's picture

You were expecting anything other than that? The fed concocted narrative of zero inflation in the face of ever increasing (and still increasing) prices is a slap in the face of average ordinary folks who have to decide how to divide up diminishing incomes.

Much like the BLS unemployment rate the CPI has been massaged for the purpose of reducing payouts and lulling people back to sleep, or back to the tube to watch another episode of Kardashian butt.

Cautiously Pessimistic's picture

Sure...rush into that junk bond market and get your face ripped off.

ghengis86's picture

I'm just gonna wait for Goldman to tell me where to put my money. They're the experts after all

/really? Do I need the sarc?

Cautiously Pessimistic's picture

Either GS or Gartman for me.  I trust them both like they were family.

Cruel Aid's picture

100% Costanza trade... sure thing

Dragon HAwk's picture

Package Debt, and Call it a Security...

Insure that security with another Debt Bundle.

Every Body at the Poker Table Can't Win. and All the Sharks in a tank with no Food, don't get Fed

bamawatson's picture

"when you are sitting at the poker table; looking around to identify the sucker; and you can't find the sucker; you are it"  --- fred goose moody

Soul Glow's picture

Damn CDS lining up like before the crash of 2008!  Too many risks insured, eh bankers?

EndlessSummer's picture
EndlessSummer (not verified) Feb 14, 2016 5:00 PM

I am not a bond savy investor - but I have purchased 2 ladders over the years. One matures in 2021 and the other 2026. To date the worst that has happened is a call. Most everything we have bought is BBB or better. We don't trade our bonds - just hold them to maturity. Recently I purchased a AAA bond which matures in 2055 (which I will nver see) and which had a yield of 4,70% (or so) in my Roth IRA. Comments appreciated.

OregonGrown's picture

The old adage is true:  There is a sucker born, every minute!

EndlessSummer's picture
EndlessSummer (not verified) OregonGrown Feb 14, 2016 5:09 PM

Thank you for your feedback. But perhaps you can expound just a little ?

OregonGrown's picture

Thank you for taking all comments.... To elaberate,  How long do you think this ponzi scheme / shit show is going to last? 2021? 2026? 2055???


I see you are an optimist.

buzzsaw99's picture

2055, yeah, that's a hoot. It'll be Mad Max way before then.

stant's picture

It's already mad max in some parts of the world

EndlessSummer's picture
EndlessSummer (not verified) OregonGrown Feb 14, 2016 5:22 PM

A few points;

- The benifactor of our hard earned savings will be the Shriner's hospital.

- Our bond holdings are perhaps 25% of our worth (probably less)

- Perhaps 50% of our worth at the moment is outside the US (and earning about 3-4%).

- I'm just an average guy trying to plan for the future.


Soul Glow's picture

Do you own any bullion?  Curious minds want to know....

And what are your foreign investments?

EndlessSummer's picture
EndlessSummer (not verified) Soul Glow Feb 14, 2016 5:26 PM

To be honest - we own a little silver - gold is hard to find.

Soul Glow's picture

Well gold and silver should be making up 1/4 of your savings.  At least.

It goes like this - you've noticed that equity has entered a bear market.  When we enter a bear market what has happened is that many institutions have dumped it for other investments, like bonds or cash, or bullion, thus the rise in yen, Treasuries, and gold.  But the scary part happens when the little guy - you - decides to dump into the same investments.  This is the loss of confidence that changes a market correction, what has already occured, into a market crash.  Then whatever remaining value in equities goes away.  

This reversion moves past the mean as herd behavior runs from risk.  That's why it is the people at the bottom of the investment chain that get hurt the worst - they weren't paying attention and their manager et al were saying "everything is ok".  I don't mean to lump you into that group, as you are asking the right questions, but you already said above you are an average investor.

So what to do?  Well first make sure you have gold and silver bullion.  Find some shops, find one with a person you like, check spot and markup before you go, and get some.  Gold bullion should make up 1/4 of your wealth and that includes any investments you have in land and real estate.  Then decide how much wealth preservation you want because then another percentage should be in silver.  If you become educated you may end up having as much silver as gold, like I do.

Then make sure to dump the whatever corporate equity you have, or at least hedge it with a short trade.  The bonds will be fine for a few months, maybe a year, but that trade will go fast too.  Have cash, some in the bank if you must but some on hand too.  When shit goes sideways cash will hold weight over everything else until the dust settles, then it will be time for your gold and silver.

DanDaley's picture

Soul - that was a really helpful answer for that guy...and I agree with you, too. Wish my friends would listen, but ain't going to happen.

OregonGrown's picture

Question, If the money you are saving is for the children, then why not sell the bonds and gift shriners hospital the money now?  

As someone already pointed out, the 4.7% 40 year bond, doesnt even account for inflation, much less hyperinflation (money printing).   The USA and the world has hyperinflated the worlds currency, making the generous gift you are wanting to give in 2055 to the hospital a mear pittance of what that gift could mean for those kids today!

EndlessSummer's picture
EndlessSummer (not verified) OregonGrown Feb 14, 2016 7:46 PM

Reply, before we ever left the US we looked into a Shriers' annuity - which semed like a deal to me. My wife was not ready to relinquish control of the money in case of emergency. I've always hoped I would go first...

EndlessSummer's picture
EndlessSummer (not verified) OregonGrown Feb 14, 2016 7:29 PM


Seek_Truth's picture

Expound a little?

How about this?


4.7% won't even keep up with inflation.

You've been had.

Going Loco's picture

You just hold them to maturity? Regardless of whether they are going to be paid or not?

Wow. That's a nostalgic reminder of times past. That's what we used to do. Long time ago.

buzzsaw99's picture

Around here "Comments appreciated" = I welcome your abuse.

Soul Glow's picture

Got to like when a new guy shows up to Fight Club.

EndlessSummer's picture
EndlessSummer (not verified) Soul Glow Feb 14, 2016 8:02 PM

My skin is thick enough. Besides I am here and you are ,,, ? Saludos.

Mentaliusanything's picture

Similar to mine and at BBB or better is appears a reasonable assumption you will be paid on time. Mine are in basic utilities and toll collection companies (infrastructure) but the companies carry a lot of debt at low rates for tax purposes. Should that change (interest rates) I will need to evaluate as they can become swamped. Stay away from convertibles because they hold the cards.

That said when things fall apart in Bonds it can be a rush for the exits. Keep you eyes on the asset backing. If like some energy stocks, you can find the backing evaporates and what was an asset becomes overnight an unsaleable liability worth less than nothing. Then your done.  

Soul Glow's picture

What are the bonds?  How are you investing?  Do you have an advisor?  

Infield_Fly's picture
Infield_Fly (not verified) Feb 14, 2016 5:04 PM

Happy Festivus Everyone!!!

Seasmoke's picture

Should be called Nothing's Fixed Income

OregonGrown's picture

We "fixed the income" of some folks'

buzzsaw99's picture

See the thing is, yeah, no, yeah, no...

Panic Mode's picture

The menstural blood bath created by the Fed.

GotGalt's picture

Yellen's tsunami of blood

dust to dust's picture

 I'm tellin ya the heat map is the cause of GLOBAL WARMING. Barf. 

OzFan's picture

Aweful map...just brutal.  

Paints a picture though.


Keep stacking peeps.