A few things have been going on in the world of high yield credit recently. While the 'beta' to recent interest rate weakness is low (spread duration reduces any empirical sensitivity here), the relative weakness on high-yield bonds in the last few days has been quite notable for the oh-so-high-beta 'safety' of high-yield credit. And while technicals (flows) dominate, the illiquidity in the cash bond market remains dire for any size and the massive 530k block sale at VWAP last night makes us nervous.
1. HYG (the high yield bond ETF) has been rolling over for last 4 days (as stocks rally) - Pros Selling Into Retail exuberance
2. Massive 530k block went through after-hours last night at VWAP - an institutional sell order
3. High Yield Bonds Advance-Decline was extremely high and is rolling over - weakening trend
4. High Yield Bond yields near record lows - technicals dominant
5. Major Plunge in Esimated cash at the fund - Considerably larger than dividend - redemptions?
6. Cash is now lowest in 3 months - not much room for more redemptions
7. HYG has not seen a drop in Shares Outstanding since June 8th - crowded trade
8. HYG is trading a very notable discount to its Intrinsic Value - illiquid bonds scared to reprice
Food for thought at least in one of the most crowded and illiquid trades there is...
but if none of that worries you - if you are buying HYG - then we suggest selling SPY against it as stocks have become their most expensive relative to credit in over three months...