The message is loud and fucking clear: the vol. seller’s/ carry trader’s paradise and the risk party that’s made every homegamer with some SPY and QQQ look like a guru for the past eight years depends on DM central bankers staying some modicum of dovish. And on that score, bad data helps.
We both agreed that while suppressed equity vol. grabs all the headlines, it is in fact credit’s Teflon performance that wins the John Gotti prize for “most bulletproof asset class.”
See if you can spot what’s still hanging on for dear life at record highs/tights despite lackluster incoming data and central bank tightening…
“Against this friendly backdrop in Europe, fundamentals remain weaker in North America despite the recent signs of improvement since 1Q 2016. Relative to the peak in credit quality reached at the end of 2010, median net leverage ratios remain significantly higher while interest coverage ratios are also lower.”
“Technical factors and central bank liquidity have allowed markets to suspend disbelief.”
“Yet there are indications that the marketplace is growing comfortable, perhaps too comfortable, with the calm.”
“Liquidity and tight bid/offers in the CDS index market has been pivotal for a number of investors to use the CDS product as a risk allocation tool, rather than a hedging tool that has been traditionally used.”
“Flows across the asset classes we track have slowed down to the lowest level since late 2015.”
Credit. Is. Passed. The. F*ck. Out.
Q1 – in aesthetically pleasing hues of blue.
Well damned if this wasn’t a good news type of day. We’d wager the only people unhappy with how Wednesday turned out are Treasury shorts (and there are a lot of them) who got burned badly by a Fed that managed to sprinkle just enough dovish pixie dust into today’s hike to send yields plunging. Oh,…
“A sign that the market is accepting that rates are indeed going higher? That issuance is finally taking more to digest? Or just another correction that looks mild if you’ve ridden this thing for the last year? My hint: it may not matter as funds were marked-to-market at year-end.”
We don’t want to sound like a broken record, but …
If you were following along last week (well, I guess technically it’s still “this” week, but you know what I mean), I hope you surmised that at least until the NFP print came down, the market action wasn’t encouraging. Specifically, stocks and bonds sold off together, suggesting that equities aren’t really ready to stomach an…
For the hundredth time: “What do rates know that credit doesn’t?”