Heisenberg Report

Out Of Adjectives.

US equities surged nearly 15% from Tuesday morning through late afternoon trading in New York on Wednesday, an astounding two-day move that again speaks to the unprecedented nature of recent market developments.

Gains were tempered into the close after Bernie Sanders threw a bit of cold water on things by suggesting he’d “put a hold” on the virus relief package if some GOP senators don’t soften their stance on unemployment benefits.

“Unless Republican senators drop their objections to the coronavirus legislation, I am prepared to put a hold on this bill until stronger conditions are imposed on the $500 billion corporate welfare fund”, Bernie warned, in a tweet.

Traders, journalists and even seasoned veterans are running out of adjectives to describe the myriad swings and dislocations across assets, which are being whipsawed by, on one hand, the promise of unprecedented stimulus, and, on the other, the certainty of imminent economic calamity.

While equities oscillate wildly (the Dow was up 17% over two days before aggressively trimming gains in the final half hour of trading), credit remains distressed, figuratively and literally. High yield spreads were still north of 1,000bps coming into Wednesday.

The amount of distressed debt in the US quadrupled over the past week to almost $1 trillion, the highest since 2008, amid plunging crude prices and expectations of a profit armageddon tied to the lockdown measures associated with the fight against the epidemic.

The number of distressed bonds traded jumped to 1,896 this week, TRACE data shows – that’s nearly double the number from early 2016, and easily the highest since the GFC years. Not surprisingly, the trouble is concentrated in the energy sector, where more than $150 billion in troubled debt lies.

In a testament to the turmoil in credit, ICE has decided this isn’t the best time to rebalance fixed income indices.

“Given the continued disruption in the markets, and after careful consideration of feedback received in response to our consultation with stakeholders on this matter… ICE Data Indices has reached a decision to postpone the March 31, 2020 rebalancing for all fixed income indices”, a notice dated Tuesday reads. “This decision applies broadly to all of the ICE and ICE BofA bond, preferred and convertible securities indices [which] will resume their normal rebalancing cycle on April 30, 2020”.

“Dealers’ weakened position and ‘full’ balance sheets mean they are not in a position to handle this onslaught of trades”, Jim Bianco remarked. “So, they will put it off until April 30 [in] another example of how historic these moves have been”.

Bloomberg’s Luke Kawa pointed to a “ridiculous bifurcation in short-term junk versus investment grade spreads [with] 2Y BBB borrowing costs at 2.5%, while 2Y BB costs are near 7.5%”.


This at a time when fears of a “fallen angel” apocalypse are running rampant, even as the Fed is now buying IG (both directly, in the secondary market and via ETFs) in an effort to calm things down.

Despite the late swoon, the Dow and the S&P still closed smartly higher, with the former posting its best two-day advance since 1987 and the latter its best two-day rally since 2008. It was the first time the S&P has notched back-to-back gains since early last month.

The dollar fell for a third day in four. It would be difficult to overstate the significance of that when it comes to assisting equities and risk assets more generally.

It’s worth noting that the TYVIX (Cboe/CBOT’s gauge for swings in the Treasury market) has collapsed to 8 after hitting a record high of 16.39 just last Thursday.

Gold fell on Wednesday, but the metal is being pulled every which way during these exceedingly turbulent times (more here). Apparently, if you’re rich and want to hoard physical gold, you can’t find any. “It’s absolutely crazy what’s going on”, Ludwig Karl, a board member of Swiss Gold Safe Ltd., which operates vaults in the Alps told Bloomberg Wednesday. “Right now, if somebody wants to buy gold, I wish them all the best in finding it”.

Remember, folks, in a literal zombie apocalypse, the only thing gold will be good for is as a projectile or a blunt object.

Oh, and speaking of the rich, if you’re one of Morgan’s wealthy clients, you would have needed to execute via E-Trade Wednesday afternoon, or else call customer service.