credit Markets

Cracks Emerge In Junk As Stock Slump Spills Over

There's consternation in high yield bonds. Or at least that's the impression one gets from a quick glance at flows data for the most popular junk ETF. High yield credit has, of course, benefited handsomely from the Fed's unprecedented foray into the corporate bond market, which includes a backstop for fallen angels as well as ETF purchases. The Fed's ETF portfolio includes the iShares iBoxx High Yield Corporate Bond ETF, the most popular junk product for the masses. On Monday, that product witnessed $1.06 billion in outflows. It was the largest one-day exodus since the onset of the pandemic in February. Flows into credit have been staggering in 2020. Investors' insatiable appetite and the temptation to invest alongside Jerome Powell helped catalyze a veritable bonanza in the primary market, where investment grade companies have borrowed nearly $1.6 trillion this year. High yield issuance has been similarly robust. But cracks in risk sentiment tied to this month's equity selloff appear to be spilling over into credit now. Junk spreads widened some 30bps over the past three sessions, with 26bps coming on Monday alone. Still, at just ~540, spreads are nowhere near the distre
Subscribe or log in to read the rest of this content.

1 comment on “Cracks Emerge In Junk As Stock Slump Spills Over

  1. I believe a good trade into next year might be to be long junk (on bonds) and long crap (on stocks), because of the Fed back stop on credit I feel more comfortable owning high yield outright, this week’s spread change notwithstanding. On equities I rather get my exposure to crap via calls and option spreads, all the cyclical stuff I dislike and that has fallen victim to Covid and poor management, in sum, the crap: banks, casinos, airlines, restaurants and malls. I’m not rotating out of my juicy and over inflated tech to buy these stocks, If we do get some inflation the crap will shine while junk will still deliver some yield, so that’s my thesis, in 2021 trade junk and crap.

Speak your mind

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Skip to toolbar