Citi's 'Red Flag' Warning From The Credit Markets
It seems the world is willing to come on TV and tell the rest of the world that consensus is bearish, sentiment is weak, and that this rally 'proves' that investors are resilient. We have shown in recent days that the consensus is much more bullishly positioned in fact and as Citi's HY credit desk noted today:
"I'm a little cautious on how much further this rally goes. Not because I think that the September road bumps that have been very well flagged are going to come and bite us, but more because the consensus, which towards the end of August was mixed, to slightly wider, is now getting into a "this market is bullet proof, the ECB and FED put is there, and the technical is still great, and we're only going one way... Tighter". When the market consensus moves like this, it's small red flag, even though it definitely doesn't feel like that at the moment."
and as a reminder of the reality we inhabit (from Citi's credit strategy group):
One recurring lesson of the last few years is that the threats of central bank intervention tend to be far more effective than the actual programs. It takes quite a lot of chutzpah to short the markets after Draghi’s “whatever it takes” comments and the FOMC’s ever more dovish statements and minutes, but it’s a different story now that the cat’s out of the bag and markets are reflecting central bank action.