8 Ways Of Looking At A High Yield Bond Selloff

Tyler Durden's picture

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...

Charts: Bloomberg

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LawsofPhysics's picture

...for what?  Okay fine, I'll stick my neck out.  Another "WTF bond rally" coming right up.

AldousHuxley's picture

there has been some volatility in the ultra high yield bonds/ REITs restating their financials

 

 

Biggvs's picture

Speaking of high yield, PHK (Pimco's high-yield ETF) trades at a 72% premium to NAV. What gives? In '08 the premium collapsed into a discount.

http://www.cefconnect.com/Details/Summary.aspx?ticker=PHK

LawsofPhysics's picture

Interesting, all I can come with is a whole lot of suckers sitting on one side of the boat.  Keeps Mr. Gross in a nice home in Corona Del Mar though doesn't it?  Hardly a "sell-off" by the way.

Greater Fool's picture

Those who trade ETF's at values far off their NAV's are just asking for it.....

Godisanhftbot's picture

 well, maybe that passes for a selloff in bond land, but looks like next to nothing to me. HYG has rallied hard the last few weeks, 40 cents is noise.

govttrader's picture

As the JPM fiasco proved...its all about positioning.  Speaking of which....50 min to 16bln more 30yr treasury bonds

http://govttrader.blogspot.com/

bmusic's picture

HYG is actually holding up well compared to other bond ETFs.  LQD, CORP, CFT are all down more.

Biggvs's picture

Must be an RBS "junk" algo running amok. Every comment is getting junked. Unplug the machine already.

ebworthen's picture

It's little Timmy at Treasury - what else does he have to do? 

Binary printing?  Paying his taxes?

ebworthen's picture

Maybe someone got a little note from the Bernanke?

All those rubber bands are pulled pretty tight...

CrashisOptimistic's picture

As has been noted, talk of the Bernanke Put is talking about the wrong market.  He will not allow bonds to dump because that is his fucking job.

If there were a global avalanche of US Treasuries, he will be in there buying hand over fist.  If he has your back on anything, it is bonds.  Stocks are not important, especially when they are just HFT output and mean nothing.  There is far more money in bonds than stocks.

It's his JOB to be sure the deficit is funded.  No matter how big it is.  Everything else is silliness.

LawsofPhysics's picture

and he will kill the dollar in order to do so.  Now let's see how that plays out for dollar-denominated bonds.  Paging cognative dissonance...

firstdivision's picture

8 ways of looking at the markets.

1) GDP fell from 2.0% to 1.5% - Bullish

2) Manufacturing contracted - Bullish

3) Jobless claims unexpectedly fell - Bullish

4) The ECB is unable to bailout Spain - Bullish

5) GDP will be revised up from 1.5% to 2.0% - Bullish

6) Manufacturing is expanding - Bullish

7) Jobless claims spike to higher levels - Bullish

8) The ECB is going to borrow money from Italy to bailout Spain - Bullish

lasvegaspersona's picture

can BB possibly purchase buy more bonds...oh yeah...he is not buying 100% of treasuries....yet...glad he is not my broker...what?...he is?

Flaming Ferrari's picture

It's clearly the beginning of a rotation out of bonds into the wonderfully cheap stock market - Bullish