High Yield Bond Slam
Since this is Uber prescient... Here's a small teaser of what's in store when I unleash: The Fallout of Bad Choices...
When high yield bond funds start making that whooshing and sucking sound, like the surf going out before a tidal wave, beware...
Since 2008, bond fund assets went from $1.6 trillion to $4.1 trillion. Conversely, dealer inventories of corporate bonds have shrunk 75% and daily trading volumes have shrunk 50%.
Translated, any semblance of structural liquidity in this market has gone up in smoke, like Jeannie trying to avoid Major's Nelson & Healy.
With a larger market and thinner liquidity, when all the elephants try to squeeze out the door at the same time, this will result in panic and a violent gap down.
No one wants to hold on to highly leveraged, under insured depreciating paper, so junk and high yield bonds get hit first. Hint, watch the high yield bond ETF flows.
Prices will rise, yields will fall, participants will attempt to liquidate, credit spreads will surge (junk vs Treasury yields), then the dominoes start falling, and its deja vu, all over again.
In today's news from Forbes... Retail-cash outflows from high-yield funds ballooned to a shocking, record $7.07 billion in the week ended Aug. 6, with ETFs representing just 18% of the sum, or roughly $1.28 billion, according to Lipper. The huge redemption blows out past the prior record outflow of $4.63 billion in June 2013.
With four straight weeks of outflows from the asset class totaling $12.6 billion, the four-week trailing average expands to negative $3.15 billion per week, from $1.4 billion last week. This reading is also a record, eclipsing a prior record at $2.8 billion, also in June 2013.
The full-year reading is now deeply in the red, at $5.9 billion, with 43% of the withdrawal tied to ETFs. One year ago at this time outflows were $3.9 billion, with 15% linked to the ETF segment.
Zoiks! its not just the high yield junk... Geoff Cutmore at CNBC Europe reports... Pimco's Total Return Fund, the world's largest bond fund which is managed by Bill Gross, had net outflows of $830 million in July, marking its 15th straight month of outflows, according to data from Morningstar.
Dieter Wemmer CFO of parent company Allianz: institutional investors are sticking with the bond fund. "Retail money is leaving, the retail customers maybe are more sensitive to newspaper articles."
The Nattering One muses... In 15 months, Pimco's fund has shrunk 22%; or $65 billion from a record high of $292.9 billion in April 2013 to $223 billion.
When high yield bond funds start making that whooshing and sucking sound, like the surf going out before a tidal wave, beware...
Since 2008, bond fund assets went from $1.6 trillion to $4.1 trillion. Conversely, dealer inventories of corporate bonds have shrunk 75% and daily trading volumes have shrunk 50%.
Translated, any semblance of structural liquidity in this market has gone up in smoke, like Jeannie trying to avoid Major's Nelson & Healy.
With a larger market and thinner liquidity, when all the elephants try to squeeze out the door at the same time, this will result in panic and a violent gap down.
No one wants to hold on to highly leveraged, under insured depreciating paper, so junk and high yield bonds get hit first. Hint, watch the high yield bond ETF flows.
Prices will rise, yields will fall, participants will attempt to liquidate, credit spreads will surge (junk vs Treasury yields), then the dominoes start falling, and its deja vu, all over again.
Who's on the hook for the underfunded swap that "backs" that instrument? How much of that "backing" has been used as collateral to leverage other deals? You get the picture.
In today's news from Forbes... Retail-cash outflows from high-yield funds ballooned to a shocking, record $7.07 billion in the week ended Aug. 6, with ETFs representing just 18% of the sum, or roughly $1.28 billion, according to Lipper. The huge redemption blows out past the prior record outflow of $4.63 billion in June 2013.
With four straight weeks of outflows from the asset class totaling $12.6 billion, the four-week trailing average expands to negative $3.15 billion per week, from $1.4 billion last week. This reading is also a record, eclipsing a prior record at $2.8 billion, also in June 2013.
The full-year reading is now deeply in the red, at $5.9 billion, with 43% of the withdrawal tied to ETFs. One year ago at this time outflows were $3.9 billion, with 15% linked to the ETF segment.
Zoiks! its not just the high yield junk... Geoff Cutmore at CNBC Europe reports... Pimco's Total Return Fund, the world's largest bond fund which is managed by Bill Gross, had net outflows of $830 million in July, marking its 15th straight month of outflows, according to data from Morningstar.
Dieter Wemmer CFO of parent company Allianz: institutional investors are sticking with the bond fund. "Retail money is leaving, the retail customers maybe are more sensitive to newspaper articles."
The Nattering One muses... In 15 months, Pimco's fund has shrunk 22%; or $65 billion from a record high of $292.9 billion in April 2013 to $223 billion.
Comments