For the life of me, can anyone educate me as to why the $HYG ETF has been rising expeditiously for the past 3 days?
Fed has not said anything about buying sub-investment grade debt, liquidity covenants from lack of company cash flows that comprise the ETF are bound to be broken, and bonds are even starting to get downgraded. Yet, this thing keeps going up! Hypothetically, all of these factors will either cause bonds to default or at least push interest rates up and lower the overall bond prices.
Am I missing something? No one can even spend money right now?
Because this whole thing has been an overreaction... The smart investors have been cleaning up on this mess
Sure, maybe so, but that doesn't mean the corporations whose bonds the ETF is comprised of are seeing cash flows to service the debt (no one can spend money, everything is closed). Therefore, covenants will be broken and bonds will be downgraded. These corporations will be required to pay higher interest payments to bondholders if the bonds are downgraded. No one knows how long their cash flows will be disrupted for, it could be months. Energy companies that comprise over 10% of the ETF could also potentially default on these bonds as no one is traveling and their is an OPEC oil war for a race to the bottom right now.
HYG's price has risen for the past few days for the same reason equities have risen for the past few days: the risk trade is back on. I also think investors liked today's new unemployment claims number, which I think was a little lower than expected.
Unemployment was projected at ~1.7M, in actuality it was ~3.3M. Don't quote me, but i'm almost positive those numbers are correct. That's around double. I literally cannot see what is propping any of this up.
I think the range was 1M to 4M. I could be wrong about the average of the data. The stock market going up by 6% after unemployment claims going up twice as much as expected does not make much sense. With that said, sometimes when individual companies make announcements of layoffs, the street sometimes views the news favorably because their expenses fall.
The implication may be that bad news means that the fed and governments will act even more to buffer things. Ie support/bailout companies, markets etc.
There was a period of team earlier last decade when literally bad news meant good news for the market because it implied central bank action. There is a reason why there are mantras such as “don’t fight the Fed” or the “ECB put” etc.
So you're telling me my put options are toast?
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