Ten days ago, before the world had heard about the stunning liquidation and gating of the Third Avenue Focused Credit Fund, we asked one question: Did Something Blow Up in Junk [3], with our question driven by the relentless collapse in triple hook-rated (CCC or below) bond prices, or alternatively, their soaring yields.
A few days later we learned that the answer to our question was a resounding yes, when first Third Avenue and then Stone Lion Capital (run by two ex-Bear Stearns distressed trading heads) [4]gated investors following what may have been a dedicated attack on the worst and most illiquid junk bonds, but was really just a marketwide puke in junk starting at the bottom and spreading to the top.
Since then things for the junk space have gone from bad to worse, and as of Friday, the effective yield on the BofA-Merrill universe of bonds rated CCC and below has soared to 17.24%, taking out the 2011 wides and trading at levels not seen since the summer of 2009... only in the wrong direction.
[5]
And yet, in a world where everyone has become an algo and thinks of performance in heatmap terms, the chart above (which we will show shortly from a far more stunning angle) hardly does justice to the absolutely bloodbath in the junk bond space.
So, without further ado, here is a visualization of the change in junk bond prices since January 1, 2015. For those confused, the redder the worse. It is, for lack of a better word, an epic bloodbath, and perhaps the only question after looking at this is how have many more credit funds not gated yet.
And yes, if one looks hard enough, there are a few junk bonds which actually are green for the year. See if you can spot them.
[6]
Source: Citi
