The Chart That Everyone Is Talking About

Something has changed...

For months high yield bond yields have been compressed alongside rising stock prices as the flood of global liquidity from central banks.

ECB buying has driven European junk bond yields below those of US Treasuries and in turn that has pressured global high yield risk lower - despite a rise in leverage to record highs.

However, the last two weeks have seen a big shift in flows as investors have fled high yield funds and pushed into investment grade and Treasuries.


And that has led to a plunge in high yield bond prices...


Not playing along with stocks...

And this time it's not some idiosyncratic sector-specific selling as we saw in Energy HY previously.

And a dramatic decoupling between equity and credit risk-


This is the first major divergence between credit and equity markets since early 2016's global growth scare.

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Bonus chart: It's not just credit risk that has decoupled from stocks, equity protection costs have too...


Iconoclast421 Thu, 11/09/2017 - 08:50 Permalink

It is interesting... LQD:HYG does have some validity thus I keep it on my list of market internals. However it tends to be a lagging indicator, or possibly a very far leading indicator. NYA200R is still way too high to take any selloff seriously.

Keep in mind that junk was looking horrid in 2H 2014 but it took the broader market 9+ months to match it in movement.

Moski Thu, 11/09/2017 - 08:49 Permalink

"For months high yield bond yields have been compressed alongside rising stock prices as the flood of global liquidity from central banks."Somethins missin here

Son of Captain Nemo Thu, 11/09/2017 - 08:52 Permalink

No worries!...

The circuit breakers, parallel line of sight data pipes and modified algo(s) will fix that problem... And when that doesn't cover it?... We can plow all of our hard earned money into a digital "encrypted packet" that no longer is restricted to the # 21 million?!!!...

How's that for insanity?!!!

Son of Captain Nemo Number 9 Thu, 11/09/2017 - 09:10 Permalink

And as the "backdrop" N 9 to that wonderful mirage of "window dressing" you have the "STUFF" that is really worth something including the humans that are unfortunately in close proximity to "IT" while "IT" is being looted for a mere fraction of those "derivatives"!...

At some point the pot "explodes"... And the SHIT be gettin mighty "REAL"!

In reply to by Number 9

RagaMuffin Thu, 11/09/2017 - 08:53 Permalink

It's like watching people on a boat that is capsizing. Go to the high side. Jump on another boat at the last possible moment. Collect your wits and the boat you are on starts that miserable yaw..............

rejected Thu, 11/09/2017 - 09:00 Permalink

So they're still counterfeiting.Must be nice to go to the printing room and get some cash to rent that underage hooker or buy that 100 million dollar dream house or loan to the marks at 18%.Oh well,,, everyone seems to not care and they say the economy is getting better all the time. How those in the past never figured this out is a mystery.

Calculus99 Thu, 11/09/2017 - 09:31 Permalink

I got Dow data going back 100 years and right now it looks just like the market in about 1927/28. If right, stocks have about another 2%-50% of strong upside. If so the chart will look EXACTLY like 1929...