Comments (9)

Sep 27, 2010

Yeah, but isn't this kind of obvious? Most of fixed income was tied up into the housing market, so of course that's gone. And as far as corporate debt is concerned, no one wants a ten year note trading on the performance of a US company when Asia is up for sale.

Apr 24, 2013

[x]

Sep 27, 2010

Haven't they been saying this shit all summer? I mean what bubble are they talking about? Oh shit, no one's issuing any more debt and the existing shits going to be traded 10 bps of treasuries!!!!! Correct if I'm wrong here.

Sep 28, 2010

Yikes.

Sep 27, 2010

"Haven't they been saying this shit all summer? I mean what bubble are they talking about? Oh shit, no one's issuing any more debt and the existing shits going to be traded 10 bps of treasuries!!!!! Correct if I'm wrong here."

Yes this is very wrong. Quite the opposite, EVERYONE is issuing right now, DCM and Levfin is getting fuckin' SLAMMED.

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Sep 29, 2010

This really comes down to how you perceive the writing on the wall. It's all about how you interpret a few things.

Gorilla Whale, Sarcasm. Learn it. Love it. Live it.

As to the impending bloodbath, everyone is issuing now while the rates are artificially low. Great, get whatever you can in and lock in the rates. Expect the government vis-a-vis the Fed to guarantee the debt and it's no wonder there's mass issuance. Oh, wait, that's not going to happen a second time around.

To summarize what I have said in the past. All of the markets are out of significantly alignment. They are actively being manipulated and there is nothing that will be done. We are in a serious period of currency debasement. If you expect us to survive without serious austerity measures and an increase in interest rates, then you are sorely mistaken. That said, companies are issuing whatever they can now before we see a revision to the mean, something that we will not like in the least bit. As I have already indicated, the markets are out of alignment. Between the S&P's current levels (and mysterious inability to move significantly to the downside for some reason that clearly has nothing to do with any sort of market manipulation), how tight the current 2s10s (I am keeping this simple instead of factoring in the 2s10s30s into this), and something about commodities which is irrelevant for the sake of this argument, we that we are unable to sustain the short term. Forget about the long term entirely. Lets add the obvious monetization of the US dollar currently going on into this equation and we are effectively working to create inflation at a high pace.

So, given those clearly apparent market constraints, the fixed income bloodbath should be pretty much cut and dry... BUT... lets discuss this even further. The 2s10s are a pretty good indication of inflation, especially when the spreads tighten. How much longer can we see the spreads tighten to the point where we have a flat and then an inverted yield curve?

Consider this, just as a separate argument towards an impending bloodbath. The Fed is monetizing fixed income securities, causing inflation, and they are doing this quite regularly. Inflation means that yields will need to rise keep up with any supposed demand by investors. At what point though, will companies no longer wish to issue high yield debt when the interest rates required to keep up with inflation. Depending on how quickly the Fed chooses to act, we will see the required yield increase at a much faster rate than expected, causing a decline in new issuance.

One last consideration is the actual US Equity Market. It's overvalued significantly and has been directly manipulated by currency intervention, monetization and a whole slew of problems that are preventing the market from actually reverting to the mean. As inflation increases, people will invest less in the stock market. As people look to the Fixed Income markets, if yields are not high enough to whet appetites, deals won't get done. And just to touch on all the current deals, if the US equity market goes down, I wouldn't be surprised if we start to see cases of new loans reaching distressed prices extremely early on.

Just some food for thought.

Sep 29, 2010
Frieds:

As inflation increases, people will invest less in the stock market. As people look to the Fixed Income markets, if yields are not high enough to whet appetites, deals won't get done.

Surely increasing inflation would cause an increasing allocation to equities from fixed income, and not vice versa as you seem to be suggesting here.

Sep 29, 2010

Selective quoting is your friend.

Well, traditionally, we would see a shift back into equities, but this is not a typical case. We're on a race to the bottom and the Fed is the only one calling the shots. My assumptions are based on the fact that we are dealing with a clearly rigged, "highly liquid" market.

As I have already indicated, the markets are out of alignment. Between the S&P's current levels (and mysterious inability to move significantly to the downside for some reason that clearly has nothing to do with any sort of market manipulation)

The parenthetical comment about the inability to move to the downside, despite its sarcastic tone, is part of the assumption and I further reference that at the start of the paragraph you quoted. The way I see this playing out is that people will move into fixed income assets in order to gain a regular cash flow despite inflationary pressures because they are unable to see appreciable gains in the equity market after having been slaughtered on the inevitable double dip and the outright manipulation taking place. When you are dealing with people that espouse the beauty of front-running the Fed or trading on the fastest HFT pipeline between New York and Chicago, they don't care about the fact that they are playing for the dealers and everyone else, be it retail, hedge fund or pension, that is not with them will be burned by them. This leads to one of two results, people leaving all the markets, or shifting into Fixed Income. Either way, it's a shift out of the equities market and into one place where they might actually find some income bearing security.

Sep 29, 2010
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