It almost went according to plan.
In what was a relatively quiet market until 2pm suddenly the Dow Jones blasted higher, supported by a burst of massive buy programs, when as noted earlier we observed the highest TICK print on record, and at 2:39pm, the number of NYSE upticks surpassed downticks by a record 1,775…
… and not just one massive buy program, but we got no less than three 1,650+ TICK prints in a space of 10 minutes as one trader tried to fake the arrival of a pension bid as other traders scrambled to figure out if pension buying had indeed returned for the third day in a row.
There was just one problem, because whoever was desperate to pretend they were a pension fund forgot to sell bonds and with the S&P trading at session highs, treasurys remained unchanged…
…in stark contrast with yesterday’s true pension reallocation, which saw TSY yields slide as stocks jumped.
And once traders realized that this was just one giant fake out meant to force stops and squeeze shorts, they started buying… bonds, with the 10Y yield sliding as low as 2.7146%, the lowest since February 2018. And as the bond were bid, stocks tumbled losing all intraday gains, and turning negative.
Meanwhile, as it became clear that no real pension bid was coming, the selling returned, and stocks closed near session lows, with the Dow losing almost 400 points of gains and briefly dropping below 23,000 although the selloff was far more controlled than the liquidation puke observed on Monday.
Back to Treasurys, where buying across the curve was not uniform, and while 30Y yields were almost unchanged, the short end crumbled, resulting in a sharp curve steepening.
Another confirmation that there was no real pension bid today, the dollar not only did not slide as it did yesterday, but was mostly unchanged if slightly higher on the day.
Meanwhile, despite the unchanged inventory print in today’s DOE report (vs expectations of a 3+ MM drawdown) and yesterday’s API inventory build, oil rose modestly cementing December’s 11% plunge for the commodity, and the worst quarterly drop since 2014.
With the dollar going nowhere, gold and silver were mostly unchanged, and as a result have enjoyed one of the best months for the precious metals in years.
Meanwhile credit, as we noted earlier, did not buy either the Wednesday record point surge, or Thursday’s biggest intraday reversal since 2010, and instead investment-grade bond spreads widened 3 basis points to 171bps, having widened every day since Dec. 14 and most trading sessions this quarter while junk bond also dropped as the high yield index widened 1 basis point to 531 basis points, the highest level since Aug. 4, 2016.
The average junk bond yield now above 8% for the first time since April 2016.
Finally, in what may be the biggest unspoken story of the day, the LSTA leveraged loan index tumbled to new multi-year lows: as shown below, the price of leveraged loans has been a one way train down, which together with another week of record outflows from the loan market, is the most ominous signal because should the loan market freeze up, 2019 will be nothing short of a credit disaster as billions of M&A and LBO deals lock up.
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