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Trader Asks: Does IG Know Something Everything Else Doesn’t?
By Kevin Muir of “The Macro Tourist” fame; reposted here with permission
The US stock market is on fire.
The American economy is clipping along at the best pace in a long while. Financial conditions are still easy. Not surprisingly, high-yield bond spreads are within spitting distance of recent tights (lows).
This is all to be expected in an environment of economic expansion.
Investment-grade not playing ball
As a macro guy, there is nothing unexplained with this picture. But I mu
I got some macro commentary recently about money flowing out of EM bonds into US high yield. They are seeking safety from the EM rout but need to still earn a decent yield. This could be a factor compressing yield spreads in favour of high yield. Another piece in the jigsaw maybe?
LQD ( i shares investment grade etf) is geared to financial and consumer cyclical sectors while low exposure to energy.
HYG ( i shares high yield etf) is geared to communication and energy while low exposure to financial.
Is it a battle of interest rates and the likelihood of higher oil prices?
Interesting, that could explain why HYG is holding up.
Yeah maybe the “trade war” narrative is gaining more traction in the market