What Does High Yield Credit Know That Stocks Don't?

Tyler Durden's picture

Yes, there are call constraints. Yes, there are 'beta' differences. But, given the strong technicals (fund flows) and empirically high correlations between the much-more-like-stocks-than-bonds high-yield credit market and the equity market, the current divergence between equity ebullience and credit curmudgeon-ness is all-too-reminiscent of the post-LTRO2 sanity check that credit 'imposed' on equities. Not only are high-yield bonds underperforming stocks (as we warned last week), but the HYG ETF is now trading at a significant discount to intrinsic value which (back in March) was the start of a more pronounced downturn as cash bonds were force-sold into an illiquid market backdrop.



Charts: Bloomberg

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govttrader's picture

then again, look at stocks vs Oil and EUR....one happy family over the past week...


slaughterer's picture

Oil has more value as a risk correlate than EUR/USD over the last two or three days.  

Precious's picture

The Magic 8-Ball says "more monetary debauchery ahead."

Flaming Ferrari's picture

Now the olympics are over, the few punters left who are not on holiday will have time to read the news. Draghi will have something to say about this.

From this morning's EMR:

"The weekend stories also haven’t been helpful in Europe. In a media interview
ECB Governing Council member Luc Coene said it makes no sense for the ECB to
start financing Italy and Spain as it would only lead to the ECB taking on the whole
public debt of those countries onto its balance sheet. He added “we haven’t
forgotten what happened in August of last year: We bought Italian bonds and right
after that the Italian government reneged on its pledges…The conclusion is clear:
When you take away the market pressure, you take away the pressure on
politicians to act.”

slaughterer's picture

March HYG sell-off, if it was bought as the opportunity it was, was the way many PMs made their year so far.  Roomers that HY, JNK will soon sell off are prevalent.  

orangegeek's picture

Gold elliott wave count shows bearish.




And as of this post, spot Gold is 1617.8.  Gold is going no where in spite of the big drop in the US Dollar today (and the rise of the Euro - Europe's growing economy the root cause of this).