Stop The Presses, An Outflow Was Spotted In IG

Stop The Presses, An Outflow Was Spotted In IG

Stop the presses. For the first time since November, investment grade credit funds suffered an outflow, according to Lipper's data. Suffice to say that post-pandemic, this is a "rarely seen in the wild"-type of event. The never-ending streak of inflows was desensitizing. But over the week ending July 21, IG credit funds shed $1.198 billion (figure below). I assume the vast majority of readers are familiar with the backstory, but just in case, I'll briefly recapitulate. The Fed's decision t
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4 thoughts on “Stop The Presses, An Outflow Was Spotted In IG

  1. High yield real rates are now negative. In looking for an empirical proof of moral hazard, this is a good candidate. It doesn’t seem to matter to investors how much QE is (illegally) directed at corporate securities, the implicit guarantee has been enough to train them.

      1. Dr. H, I am not a lawyer. And legality is only oblique to the thrust of my comment, which is mostly about moral hazard, implicit government guarantees, and the ludicrousness of “high yield” corporate debt yielding negative real rates. I pay no mind to the attention seekers you mention.

        I see little point focusing on issues of legality at this point, given the general lawless and unaccountable context of the present day. However, for the record, I think a reasonable person could interpret that the FED has overstepped its emergency authority under 13(3). “Unusual and exigent circumstances” have, one could argue, come to be normalized. It is not crazy to think the spirit of the laws have been violated, as the domestic banking authority has mission creeped as far as it has into these areas. It is also not crazy, when high yield debt of zombie companies yields negative real rates, to think that the FED will eventually mission creep further into owning equities. You have said as much yourself. And from all appearances, much of the market seems to believe this as well.

        It’s the same type of logic on display as the war on terror. Emergency measures become permanent and normalized, and every crisis begets even larger emergency measures. “Crisis” is contextualized as normal, and words gradually lose meaning.

        It would be nice to see some protracted Supreme Court cases on how the 4th Amendment has been trampled on over the past 20 years, as well as some cases related to the FED, but I am not holding my breath.

        1. “The ludicrousness of ‘high yield’ corporate debt yielding negative real rates…”

          Then don’t buy any. Problem solved… on your end, anyway, which is the only end that should matter to you.

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