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
Four leveraged-loan deals have been pulled from the market so far in November, the most since July. Yet another sign of slowing demand for this recently hot market. https://t.co/CVJ72pros5
— Lisa Abramowicz (@lisaabramowicz1) November 27, 2018
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.
Mike “Mish” Shedlock
Kudlow sold his soul. An unabashed free-trader his entire adult life is now shilling for tariffs and trade wars.
Sigh.. stats without context. So what is the notional downgardes to outstanding debt? Quoting one without the other is meaningless.
Same goes for the corp debt as %gdp. Has the level of rates (absolute or risk adjusted) affected that? What about the choice between equity and debt funding and factors affecting that decision?
The chart of Non-financial corporate debt as a percentage of GDP is interesting, but I lack an important piece of knowledge necessary to interpret it. What percentage of GDP do non-financial corporations account for? Has that changed? I suspect it is growing, too. If it is growing at the same rate, the long term upward trend in this chart may not tell us anything, though the shorter term cycles still do.
I don’t know the answer regarding the GDP percentage of non-financial corporations either. However, I would suspect the opposite, that the non-financial corporate percentage of GDP is either flat or declining a little. I’m basing this on the financialization of the economy (a greater share of GDP in the finance sector) and growth in government spending which all counts toward GDP. I’m curious if anyone knows the actual stats.
It looks like 2007 all over again.
This time it is in private corporate debt markets. But it is also trickling into other loans as it has moved money to other parts of the economy. House of cards.