Credit Closes at Lows As Equity Ends At Highs

Tyler Durden's picture

Investment grade and high yield credit spread markets, which typically trade very closely coupled with equities, followed the path of the European session and completely negatively diverged from stocks today. IG and HY credit closed very close to its wides of the day while the S&P managed to limp up on average volume to close near the day's highs - after stagnating around VWAP for much of the afternoon. Into the close, we saw a similar pattern to yesterday as hedgers jumped in to credit and HYG (the high-yield ETF) dropped significantly and IG credit (a cheap hedge) lost ground. ES tracked risk markets (outside of credit) almost perfectly all day long - something we haven't seen in a few days - as today appeared very much a wait-and-see day with Europe's modest outperformance enough to quench sellers in equity positions for today at least. Commodities (ex-Oil) were largely unchanged as the dollar ended modestly lower as EURUSD oscillated on Merkel rumors and correlation trades. TSYs rallied off what was an awful 30Y auction but ended the day higher in yield and steeper in curve.

Given the detail in the chart we suggest you click to enlarge it. From earlier in the week, equities appear to have been clinging to hope while professionals in the credit markets have been derisking. HY has faced some stress from two BK (or near BKs) but today's action is as divergent as we have seen in days with IG and HY (dark and light red) closing near their lows of the day as stocks (blue) end near their best levels. Also note the late day dive in HYG (green) as it dived to catch up to HY's performance - this is once again related to the liquidity preference as longs obviously concerned about holding overnight reached for whatever was easiest to hedge.


The moves in equity markets - specifically the S&P 500 futures - were extraordinarily correlated with risk assets today. As we often say, if you can see EURUSD then all is clear. But today the chart below, which can be tracked intraday here, shows the broad risk-basket and ES were keeping each other company all day suggesting little 'exogenous' buying or selling pressure from real money.

Away from our normal charts, we note that the cross-currency basis swap for EURUSD has reached levels not seen since 2008. This tends to be a decent proxy for the funding stresses between USD and EUR denominated markets and suggests the seriousness of the bank funding markets that perhaps Libor (with its central bank disintermediation) does not always transparently indicate.

and EUR-USD swap spreads indicate - at least for now - that EURUSD has reached a model-based 'fair-value'. Based on the full term structure of swap spread differentials between the USD and EUR, this chart gives some sense for the drop in the EUR that we have highlighted caused the short-squeeze, the over-correction spike and the settling back to 'nromal' for now. Of course, with Greek, Italian, French, and Austrian bond spreads all breaking records (and EFSF bonds deteriorating rapidly), the growing expectation that the ECB will print-and-rescue is perhaps weighing (among other things) on the FX market.

All-in-all, it is incredible to us that we can see such divergences among the major asset classes - especially given HY's still extreme cheapness to equities (if one had a bullish perspective). Under the covers, chaos is reigning and relying on good-old-fashioned Dow indications is clearly not enough to manage risk in this environment - though we hope that has been obvious for years.

Charts: Bloomberg

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junkyardjack's picture

The deadline for the review will be after all futures brokers can figure out how to segregate client funds without blowing up

Hard1's picture

Moylcorp (MCP) the bubble getting pricket this afternoon.  Despite their misleading name, rare earths are actually abundant and cheap to extract.

Deadpool's picture

could be rotation out of debt into equities for Santa Clause rally.

oogs66's picture

jobless claims?  equities are all so afraid of missing the next bailout - which technically is still the same bailout because it never got finished


LooseLee's picture

Anyone who advocates, supports, awaits, or desires bailouts is the very definition of a Fascist/Communist/Socialist. They are Un-AMERICAN to the CORE and will end up with bulleseyes on their foreheads when TRUTH prevails......

Belarus's picture

I'm going to stop reading these end of day "trading" pieces. They don't help me with anything actionaable, which I'm sure says more about me than the summary piece but for me I've realized it's a waste of time reading it.

Deadpool's picture

thanx for sharing. now go pull your pud...put don't tell us about it.

Belarus's picture

Deadpool, you should put on the "I'll take it in the ass for ZH" t-shirts anytime now. you'll look good in it. 

Deadpool's picture

The Tylers are our hosts, dontcha know. You can read Marketwatch or yahoo finance if you'd like. Internet is still free...

Nucking Futs's picture

don't you know?  down is the new up.  and as someone made an astute observation a couple of days ago.. no means yes, and yes means harder.  right now the markets are saying no, but soon they'll be saying yes to QE.

SheepDog-One's picture

African 'Native Peoples' should have stopped poaching them for China consumption at $5,000 a gram. 

Then they blame it on 'the environment' yea OK lmao...see its 'your fault' of course.

RobD's picture

Well of coarse it is extinct. The damn thing has great hearing but when it hears the poacher cock the hammer it can't see anything because it has this huge horn sticking up right in it's line of sight which makes it cross eyed just like those glasses Steve Martin's character invented in the move The Jerk. Darwin at work my friend.

Reptil's picture

Darwinism? You mean that delusional apes (us) murder pivotal species in their biotope for some deranged idea about ingrown hair (which is what the horn actually consists of; hair)? That we're working very HARD the last oh say 50 years to make our planet totally uninhabitable for ourselves?
It's NOT a "thing", it's a living creature with DNA related to ours. It's demise brings ours closer. Everything's connected.

Usually the next step is that someone comments "yes but the planet will survive", which makes our impending demise even more stupendous.

FWIW today's catch from the sea of information:
the good
the bad
and the ugly

sorry for the OT, I feel compelled to react, this fake "wildlife conservation" has been on my mind since seeing this today:

RobD's picture

It was a joke dude, lighten up.

Silver Bug's picture

Well that was a interesting day to say the least.



SheepDog-One's picture

All indicators point to a dead economy, collapsed banking system totaly reliant on 0% free money yet still insolvent, Eurozone bankrupt with no possible solution other than breakup and even then nothing is fixed, all with equities near all time highs....yet somehow all is well for today, and next day.

Deadpool's picture

Picked the wrong day to stop sniffing glue.

Caviar Emptor's picture

....and China, HK circling the drain, dragging down shipping and emerging markets. 

The transformation since 2008 is now complete: A corporate welfare state now exists with a social welfare state dependent on it. Without the money printing press on full blast 24/7 and jackbooted "peace officers" there's nothing holding it up

mynhair's picture

Sounds totally bullisht!


(dam t's)

0cz's picture

I miss the glory days.  Just to think....only 2 months ago I was living in a world where the markets actually reflected the economic atmosphere:

Manthong's picture

A blast from the past.

I'm sure glad all of that craziness is behind us.

wrs's picture

Very strange last half hour.  The SPX feed was showing spikes down to 1230 all day long and they came and went.  There are several places with RT charts that displayed them so either they were real or data but they were from the exchange.   The last half hour saw a lot of volume compared to the rest of the day, more than normal it seemed to me.  I thought that there was a hedge fund liquidating in that last half hour and someone was just buying everything in sight to hold the market up.

scatterbrains's picture

Full moon today bitchez and going into 11/11/11 tomorrow.  100+  /ES points down would look awful pretty on the charts.


wrs's picture

Very strange last half hour.  The SPX feed was showing spikes down to 1230 all day long and they came and went.  There are several places with RT charts that displayed them so either they were real or data but they were from the exchange.   The last half hour saw a lot of volume compared to the rest of the day, more than normal it seemed to me.  I thought that there was a hedge fund liquidating in that last half hour and someone was just buying everything in sight to hold the market up.

wrs's picture

Very strange last half hour.  The SPX feed was showing spikes down to 1230 all day long and they came and went.  There are several places with RT charts that displayed them so either they were real or data but they were from the exchange.   The last half hour saw a lot of volume compared to the rest of the day, more than normal it seemed to me.  I thought that there was a hedge fund liquidating in that last half hour and someone was just buying everything in sight to hold the market up.

mynhair's picture

wrs, what feed were you watching?  Use Scottrade here, and they are notorious for strange data spikes and drops.  They even show up in T&S, but the time stamps are off.  Switch to a different interval, and they disappear.  Switch back and they are gone.

wrs's picture

The one on Yahoo for the S&P chart and then on another website I follow they have a live feed that is charted and it was spiking all day long. I haven't observed this behavior before.  Interestingly enough, the spikes are retained in the data.  Here is the final chart from Yahoo today.^GSPC+Basic+Chart&t=1d

mynhair's picture

WTF?  That's 3 more than I saw today.  Who knows in this crooked market?  I've been seeing this kind of stuff for a year, but get no answers from Scottrade.

slaughterer's picture

I get the sense that this is a calculated sell off to the bottom fishing dip buyers, as a set up for a nice two-week decline to 1000.

chump666's picture

Smart money (which is getting dumber) was gamed by HFT waiting for fat momo trades.  You go long in this market you are going to get fleeced.

Strange session, that and the flat rally, the ECB do the print job, and they probably did something last session,  it might not fix credit spreads.  Then there is the inflation trade as everyone jumps into oil.  Which Germany (close to recession) and France (done) will love.

No one is taking this market higher.  HFT's ony offer that illusion of support.  Can't see equities holding up much longer.

reggiehammond's picture

Please keep in mind the S&P is APPRECIABLY LOWER THAN 1998-2000 so money in the market for the past decade is basically DEAD FUCKING MONEY especially when you factor inflation FUCK YOUR %10 HERE AND THERE (if you can even afford to pay the inflation associated with health care). What we are really looking at is a circus that is becoming more and more antiquated and disfigured by time and circumstance. In bygone years, people would go to circus and watch the amazing clowns and animals defy preconceived notions. What a spectacle to see someone shot out of a cannon!!!! Then the masses started to realize that the circus treated the animals like shit and the performers were generally weirdo junkies. Now people aren't really going to the circus giving a fuck about lion jumps or dudes with helmets on a tightrope. Basically our society fucked up and gave these pricks way TOO MUCH POWER AND INFLUENCE. THE ONLY WAY TO CHANGE THINGS IS TO INFECT ELITE CALL GIRLS WITH DEADLY STDS AND RAISE THEIR HOURLY RATES SO WALL ST EXECS/CEOS/SPITZERS GET IN A PISSING CONTEST TO FUCK THE GIRLS WITH THE EBOLA/AIDS HYBRID. THEN WE CAN LOWER THE PRICE SO MIDDLE MANAGEMENT GETS A TASTE AND THEN I WILL BE ABLE TO GO TO THE BEACH ON A NICE DAY AND FEEL GOOD ABOUT AMERICA.

mynhair's picture

...and cheers to you!



madbuilder's picture

SIR: arguably the best solution i have yet to hear.  but i wouldnt want to jeapordize the well-being of the call-girls being they are the only morality based actors in such a transaction.  can we just main line the pricks?

Reptil's picture

this might get you in the right direction:



chump666's picture

Just got wire reports on Goldman calls for FX's all USD weakness.  Goldman are getting dumber by the day.  The do realize that there is only a slight pause in the EU endgame, Italy yields (10yr) are still  4% high from last 'auction'.  And the German wing of the ECB may can the bond buying insanity.  Y'know, the Germans are paranoid of inflation and the like.

EUR is overbought relative to the European sh*tstorm.

mynhair's picture

I don't think the EUR is oversold.  Our sh*tstorm beats their sh*tstorm hands down.

We have ODummer, and his voters.

chump666's picture

To form one massive sh*tstorm?  Yeah I can dig that.  But order of collapse Europe, US, then China (which will be the end of everything)

In the meantime  some money to be made here.  Friday night sushi, Sake (vodka is better), good female company etc etc

chump666's picture

 can smell a 7% again as the ECB/Europe implodes. C'mon Silvio, you gamed these a-holes last time, you aint gonna let some dumbass economic butnut take your country?  As for Greece...what a joke that county is...

Lets go.

BERLIN (Dow Jones)--European Central Bank executive board member Juergen Stark Thursday reiterated that the central bank wouldn't overstep its mandate and agree to monetize public debt, throwing more cold water on calls for the ECB to assume a more proactive role in combating the euro-zone's debt and banking crisis.
Stark's comments come as the focus of the euro-zone debt and banking crisis shifts to Italy, where government bond yields have soared to what are likely unsustainable levels due to uncertainty about the government's ability to cut debt and shore up the economy.
"We won't allow any monetization of public debts," Stark said in a speech Thursday night in Berlin. Proponents of more active ECB intervention to fight the crisis have called for broader bond buying by the central bank in countries like Italy.
Stark suggested unlimited bond buying would overstep the ECB's independence and core mandate to promote price stability. The central bank has repeatedly cautioned that its bond buying program is temporary and aimed at restoring the transmission of its monetary policy to the economy.
Stark called moves by Greece to make former ECB Vice President Lucas Papademos its next prime minister, and the likely selection of Mario Monti to lead Italy's government "a slap in the face" to the politically incapable class in those countries.

dcb's picture

as someone who trades, I expect equity to open down and credit to open high. they just trqade differently. credit always trades back to baseline,equity races in general it is better to be short equity long credit at the open. edpending on situation of course.


I like trading credit because it gies back to baseline much more often than equity. I find myself often shorting equity waiting for it to go back to my entry point, see yesterdays action) where credit seems to prefer to go back to a base. in equity if you fuck up the initial trade (esp in this environmet) it haunts you credit gives you a chance to go ack to a baseline.

mynhair's picture

But that reverse split in TMV was meant for us peons to stay out of shorting TSY long bonds.

The bastards.  Totally unwarranted.

undercover brother's picture

if the powers that be sensed the shit was going to hit the fan and all this negative news meant anything, the S&P would be down into the 800s or lower by now and the dollar would be over 90.  but they're not.  why?  because none of this crap matters. the fed's new mandate has been to rescue the stock market at all costs, even if the result is full currency debasement and inflation. and despite the fact the treasury has been raided for generations to come, now the fed has decided to rescue europe too.  hey, at least a rallying stock market  keeps grandma and her 401k hedging the cost of inflation, not to mention voting for the incumbents.    Every dip is bought, every sell off reversed within 2 days.  the euro will not die, the dollar pops then reverses that lower.   this is full on bull market action primed by the money printers.   Its' exactly the same as the QE1, QE2 & QE2.5 days.  step back and think about your shorts because if you think we're going lower any time soon, you're just wrong.  moral hazard is back. BTFD baby!

Bear's picture

I don't this deviation is too strange ... equities have been deviating from fundamentals for over two years now.