Nov 13. Junk Jitters

–The broad story is shifting to the idea that capital is being less accommodating.  Fraying starts at the edges and stories about deterioration in the high-yield market are becoming more common.  At the end of 2015 going into 2016, it was all about energy companies as the price of oil plunged.  Now spreads are widening on retail, healthcare and telecom.  Ambrose Evans Pritchard features a story calling high-yield the canary in the coal mine.  According to people that have seen the report, JPM also highlighted the rout in junk bond pricing last week.

http://www.telegraph.co.uk/business/2017/11/12/time-investors-leave-party-latest-bond-market-wobbles/

I mentioned over the weekend that junk ETF’s HYG and JNK closed at their lowest levels since March.  According to St Louis Fed, the BAML Hi-Yld option adjusted spread has rallied 40 bps since late October, though from the absolute low of 340 bps.  The last time the spread was that low was in the summer of 2014, and it took a year and a half to reach a high of 864 bps in Feb 2016.  Leveraged loans have displaced a large % of hi-yld issuance so signals may be a bit more opaque, but there are other indications that capital is being more selective in funding the capital burners, for example TSLA and SNAP.

–A couple of stories about a large seller of Gold futures on Friday, which caused a quick $10 drop.  I have no idea if this is related, but the Saudi freeze of $800 billion in assets automatically makes me think of forced sales and front-runners.

–PPI Tuesday.  CPI and Retail Sales Wednesday. Several Fed speakers during the week, but Brainard on Thursday afternoon may be most important as she is one of the fed continuing Fed Board members and has generally been cautious regarding inflation and rate hikes.

Posted on November 13, 2017 at 5:16 am by alexmanzara · Permalink
In: Eurodollar Options

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