Credit Crash Concerns Spark Biggest Investor Underweight Since 2008

Tyler Durden's picture

Alarm bells are starting to ring across multiple asset classes as we approach The Fed's first double-rate-hike-in-3-months since 2006. The most concerning canary in the coalmine is US credit markets...


After a bigly run-up from the Feb 2016 lows - on the heels of unprecedented central bank cooperation - IG bonds began to break bad shortly after Trump's election and HY bonds began to collapse as The Fed stepped up its jawboning and after Trump's address to Congress...


And notably, this is not an "energy-specific" issue - the entire high-yield complex is selling off...


Participants in this month’s BofAML Credit Investor Survey developed significantly more bearish views toward high yield valuations.

The net proportion of investors expecting wider spreads one year from now jumped to 76% from the previous 23% in our January reading. This figure represents the greatest proportion of investors that expect wider spreads since May 2006, when high yield was trading at just 288bps.

Similarly, a net 85% of investors now find spreads overvalued compared to 67% in January, the highest figure since April 2007.

This bearish sentiment has caused investors to shift toward a net underweight stance on high yield (net 12% underweight), the first time a majority of respondents have been underweight since 2008.


Notably US Fiscal Policy is rapidly rising as the biggest concern for credit investors...


HY Fund outflows are surging...


So "storm in a teacup" or the "canary in the coalmine" - sentiment, flows, and positioning seem to signal the latter (but for now stocks don't care).

As Bloomberg's Simon Ballard notes, given the current backdrop of political uncertainty on both sides of the Atlantic and skepticism about whether a growth rebound can last absent stimulus, risk appetite seems to be wavering. It will be further tested if efforts by central banks to quash future inflationary pressure, resulting from loose monetary and fiscal policy, end up choking economic growth.

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DownWithYogaPants's picture

Von Firstenberg!

Before election: Oh we gotta be careful.  We might need to let the economy run hot!

After surprise election result:  raise raise raise!  

Deep State strikes back.  So voting does appear to affect results after all.  It's been quite educational watching the organs of the deep state rise up from the depths of the Marianas trench like Godzilla attacking Japan.  

DingleBarryObummer's picture

They did the same thing to Jimmy Carter.  I think Trump was in on this gag but it doesn't matter, and is not worth debating.  The results will be the same.  Voting doesn't matter, so everyone should stop feeding the beast by pretending it does.

flicker life's picture
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CaptOveur's picture

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Farqued Up's picture

Moar biggest concerns missing from chart......

Food shortages
Nuclear war
Nuclear terror, WTC, Fukushima, and ???? who knows?
Chemtrails, HAARP, etc.
Civil war
Gov confiscations, bankster confiscations (bail-ins)
Solar induced radical Earth changes

Those are the ones off the top of my pea brain. All are real potentials.

Sh3epdog's picture

Don't forget a major Coronal mass ejection (Solar flare) which is just a matter of time. Last big one was The Carrington event, and it fried alot of telegraph lines by directly inducing a current far higher than what devices could take. The more complex and fine electronic devices get the more susceptable they are to this sort of thing. Some countries like South Korea are wisely building in excess capacity into the electrical grid so that a massive solar storm won't catch them with thier pants down, most other countries are ill prepared. 

Then of course there's the risk of an emp from a low grade nuke. Barring all out full scale nuclear war military experts have determined casualties from a low grade nuke detonated in the upper atmosphere and the resulting damage/destruction to say the USA would result in more secondary casualties than a direct strike of a nuke hitting a major population center. 

TheVoicesInYourHead's picture

Credit getting killed, small caps getting killed.

Nothing to see here folks.

buzzsaw99's picture

only a retard would bet on credit spreads. jebus h, how many factors come into play? if spreads are blowing out and the 10Y yield is rising that's um, not good for those in need of ez-sleazy credit. If the usa 10Y keeps marching toward 3% Yellen becomes irrelevant.

RibbitFreedom's picture

Voting doesn't matter. When the QE and borrowing ends because foreigners refuse to continue to finance the profligate lifestyle of the United States, is ALL that matters.

buzzsaw99's picture

the chinese kleptocrats have been just a wee bit profligate too. (as well documented on zh)

shizzledizzle's picture

It's not a divergence if it NEVER EVER correlates again.

Yen Cross's picture

   HY and IG still have a long way down to go.  ;-/