Authored by Mike Shedlock via MishTalk,
$176bn worth of corporate bonds has fallen from ‘A’ to ‘BBB’ so far this quarter – the highest since late 2015.
The Tweet of the day goes to Bloomberg’s Tracy Alloway.
$176bn worth of corporate bonds has fallen from ‘A’ to ‘BBB’ so far this quarter – the highest since late 2015, when low oil prices sparked a wave of fallen angels in the commodities space. Via Goldman: pic.twitter.com/UmDEpFYtl7
— Tracy Alloway (@tracyalloway) December 17, 2018
In contrast to 2015, this is not just oil-related. Let’s fill in all the missing pieces.
First Time Since Lehman
The Financial Times reports US Credit Markets Dry Up as Volatility Rattles Investors.
Not a single company has borrowed money through the $1.2tn US high-yield corporate bond market this month. If that drought persists, it would be the first month since November 2008 that not a single high-yield bond priced in the market, according to data providers Informa and Dealogic.
Junk Bond Spreads
U.S. junk-bond spreads are the widest since April 2017. pic.twitter.com/Y5mt7bSlgZ
— Lisa Abramowicz (@lisaabramowicz1) November 15, 2018
Bianco Research
Bloomberg reports High-Grade Credit Weakens Most Since February on GE Angst.
Leveraged Loan Deals
ZeroHedge reports late that in the aftermath of a dramatic drop in loan prices, a record outflow from loan funds, and a general collapse in investor sentiment that was euphoric as recently as the start of October, the wheels had come off the loan market which was on the verge of freezing after we got the first hung bridge loan in years, after Wells Fargo and Barclays took the rare step of keeping a $415 million leveraged loan on their books after failing to sell it to investors.
The two banks now “plan” to wait until January – i.e., hope that yield chasing desperation returns – to offload the loan they made to help finance Blackstone’s buyout of Ulterra Drilling Technologies, a company that makes bits for oil and gas drilling.
The reason the banks were stuck with hundreds of millions in unwanted paper is because they had agreed to finance the bridge loan whether or not there was enough demand from investors, as the acquisition needed to close by the end of the year. The delayed transaction means the banks will have to bear the risk of the price of the loans falling further, as well as costs associated with holding loans on their books.
… Meanwhile, things are even worse in the bond market, where not a single company has borrowed money through the $1.2tn US high-yield corporate bond market this month according to the FT. If that freeze continues until the end of the month, it would be the first month since November 2008 that not a single high-yield bond priced in the market, according to data providers Informa and Dealogic.
Not Isolated
The selloff in GE is not an isolated event. More investment grade credits to follow. The slide and collapse in investment grade debt has begun.
— Scott Minerd (@ScottMinerd) November 13, 2018
Recession Odds
Another Forecast? U.S. recession chances edge up, risk Fed delivers fewer hikes:… median probability for the next two years rose to 35 percent from 30 percent in Octoberhttps://t.co/2CQsmgfIxM
Charts via @WSJ @SoberLook#Investing #Privateequity #Leveragedloan @DiMartinoBooth pic.twitter.com/GAZ24ynDfA
— Mo Hossain (@MoHossain) November 20, 2018
Contrary Indicators “No Recession in Sight”
This one is either downright funny or ironically serious, depending on your point of view.
Top White House economic adviser Larry Kudlow says ‘Recession is so far in the distance I can’t see it’.
Piling On
Looming Maturity Wall
The preceding two charts are from the MarketWatch report U.S. Corporate Debt Party is Getting Out of Hand.
Not Just US
It’s not just the US either: [Europe Is Ground Zero for Global Credit Fears](Europe Is Ground Zero for Global Credit Fears)
Capitulation Silliness
The above Bloomberg chart notes “capitulation”. I disagree.
On a short-term basis the Bloomberg chart does indeed look like a serious selloff.
Long-term, we are not even close.
An asset-bubble, credit-bust recession is on the way.
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