For the last four days, HYG (the high-yield bond ETF) has seen a significant underperformance in the latter part of the day. As we noted yesterday, high yield bonds (and investment grade) are seeing the advance-decline line rolling over. Stocks stand notably expensive relative to high-yield credit once again and VIX smashed over 1 vol lower from its gap up open at 16.5% to end at near 5 month lows under 15.25% - its most discounted/complacent to realized vol in over six months. A weak 10Y auction spurred Treasuries to underperform - which helped pull S&P 500 e-mini futures (ES) risk higher (along with oil strength) but in general stocks and gold tracked one another loosely higher while the USD pushed conversely higher - ending the week so far unch. Cross-asset-class correlations drifted lower all day - with credit and carry FX listless while stocks/oil/Treasuries did their risk-thang (though oil tapered back to lows of the day by the close as Gold/Copper/Silver trod water. Three days of terrible volume, even worse average trade size, and the lowest range in five months suggests anyone serious has left the building and perhaps explains why stocks aren't following credit lower.
HYG (and credit in general) has notably underperformed the last few days...
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with SPY trading its most expensive to credit in over three months...(lower pane)
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As VIX closes at near 5 month lows at 15.3%...notably beyond stocks/credit fair-value which is around 16.5%...
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we note that SPY 3 month vol is now at its most discounted to realized vol in six months...
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and while 10Y underperformed (up near 1.65% yields), stocks and gold recoupled even as the USD leaked back higher (inverted below) to end the week todate unchanged...
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but for now the trend remains your friend - even if it is simply irreconcilable with anything remotely sensible aside from an inane belief that everyone is smart enough to exit right before everyone else and the news is sold...
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and the lowest three-day range in five months as volume remains crushed...
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...but it does seem by the looks of the terrible volume and three days in a row of very weak average trade size that the big boys have left the building and retail is playing now (which perhaps explains why high yield credit is underperforming so much)... trade accordingly
Charts: Bloomberg
Bonus Chart: The last two weeks of rallying in stocks has been most correlated/driven by the Treasury 2s10s30s butterfly... let's hope 10Y doesn't start compressing a little here since it remains the dominant segment of the curve - as 30Y seems immune to any inflationary fears from the inevitable open-ended QE...
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