While volumes have been very low the last couple of days, as one would expect given the seasonals, market schizophrenia has been very surprising. Financials went from worst to first and managed to pull out a rather edifying 1.2% rally in the last 20 minutes of today - now up almost 3% since Friday's close.
Meanwhile, over in credit-land, financial spreads have barely compressed in 5Y and even less so in 3Y and today saw a dramatic shift in sentiment towards investment grade credit as it was dramatically net sold (notable even with some high quality issuance offering modest concessions and therefore driving switches). In the chart the Net column is net selling from the buy-side to the sell-side with green indicating more net-selling.
Drilling down into this, we see highest volumes and largest net-selling from the buy-side in JPM, GE, GS, BNP (with BAC and WFC also net sold on high volumes). Looking across maturities, buy-side managers were shortening duration - net-selling longer-dated corporates (7-12Y, 3-7Y, and >12Y in order) while 1-3Y saw net buying.
At the broad index-level, credit markets are looking very different from the euphoria of the stock market with only 5Y HY spreads tighter since Friday's close - but this seems more driven by curve flatteners and index arbitrage. IG credit is wider, 3Y HY is wider, Europe is wider everywhere, and single-names are underperforming the indices suggesting professional investors are using the strength in risk assets to rotate from their macro overlays into name-specific hedges as the market offers them some room.
HY cash volumes were relatively low but it seems investors were using HYG (and JNK) to hedge late in the day as the typically highly SPY-correlated high-yield ETFs disconnected notably:
As we have often heard said, credit anticipates and equity confirms - but unicorn tears and phoenix farts may yet prove credit wrong as ES closed within a tick of the magical 1200 level.