It has been a tough year for equity investors: nearly seven months in and the S&P 500 has been caught in what may be its narrowest trading range in history, fluctuating between unchanged and up 4% for the year for the past 6 months (which is not unexpected for those who have said the only thing that matters for the US market is the growth, or lack thereof, of the Fed's balance sheet [3]).
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But while stock investors have nothing to write home about, and even less to expect in year-end bonuses (at least until Yellen inevitably launches QE4), for junk debt investors, especially those still holding energy bonds, the last 8 months has been a horrific roller coaster as can be seen on the chart below, which shows that energy credit spreads are once again on the verge of blowing out through 1000 bps.
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But for those equity investors caught in the artificial glare of the goalseeked stock market to appreciate how truly ugly it has gotten in the junk bond space, here is a heat map showing the YTD change in junk bond prices (relative box size indicates total outstanding debt amount) when seen in terms of either the 31 subsectors.
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... or the 805 issuer companies that make up Citi's junk bond tracking universe.
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At some point, investors (using other people's money) will tire of throwing good money after bad hoping to time the bottom tick in oil just right (and if oil tumbles in the $30, that may be just that moment) at which point the commodity capitulation which we noted previously, will spread away from just commodities and junk bonds, and spread to all sectors and products, including stocks. We can only hope this does not coincide with the Fed's increasingly more amusing desire to rate hike imminently.
