HYG and JNK

L

lesserfool

With Third Avenue and now Stone Mountain suspending redemptions, it's time to start a thread about these junk bond funds.

Carl Icahn says these funds are a keg of dynamite:
http://www.cnbc.com/2015/12/11/carl...-yield-bonds-market-is-a-keg-of-dynamite.html

Greg Peters from Prudential doesn't think so:
http://www.cnbc.com/2015/12/11/more...bt-as-hedge-fund-suspends-redemptions-dj.html

What do you think? Are these funds large enough to affect the broader junk bond market? What about equities and credit derivatives?
 
The market's big declines start out as "no big deal"... "just noise", "just a correction"... then at some point.... snowballs. Could happen here, too.

They don't ring a bell at the top.
 
Scataphagos said:
The market's big declines start out as "no big deal"... "just noise", "just a correction"... then at some point.... snowballs. Could happen here, too.

They don't ring a bell at the top.
More...

In my mind, two logical scenarios from here. I count the S&P's August, 2015 low as the end of the "4th wave up from 2009"

(1) The "5th wave up" from 2009 had its 5th of 5th as a "failed 5th wave" with the 5th "failing to take out the highs of the prior 3rd", and with the 5th of the 5th of the 5th having been truncated.... if so, the final top is already in.

(2) The current dip is the "c" of 4th of the 5th up from 2009. For that to work out, I suspect the Fed will have to chicken out on the rate hike because of the market being down this week. If so, could launch the "5th of the 5th of the 5th" rally into the final high. Maybe March of next year??
 
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Having been run by Marty Whitman, I had thought of Third Value as my go-to vulture fund in case of a liquidation event.

I am still expecting major bankruptcies in the energy space. However, I am also looking for good alternatives in junk.
 
Scataphagos said:
In my mind, two logical scenarios from here. I count the S&P's August, 2015 low as the end of the "4th wave up from 2009"

(1) The "5th wave up" from 2009 had its 5th of 5th as a "failed 5th wave" with the 5th "failing to take out the highs of the prior 3rd", and with the 5th of the 5th of the 5th having been truncated.... if so, the final top is already in.

(2) The current dip is the "c" of 4th of the 5th up from 2009. For that to work out, I suspect the Fed will have to chicken out on the rate hike because of the market being down this week. If so, could launch the "5th of the 5th of the 5th" rally into the final high. Maybe March of next year??
More...

Both very plausible scenarios...More to the point, though, is the Fed's whole schtick about "telegraphing" or preparing the market for rate hikes...If they did chicken out to save the final two weeks of the year in a WTF rally (see last December 16-29) for an example...This would further cement their legacy as completely biased towards goosing asset prices at the expense of everything else (just see Draghi's comments last Friday as a recent example)...

It's clear that they've already pulled this once already in the fall with their hawkishness on August 19th (which started that waterfall decline into the 24th), and then just a few weeks later they were suddenly dovish (since asset prices were off 10%)...Playing games with an already hollowed out market is short-term reckless thinking...
 
On the one side you have Icahn, who has been around the block a couple of times. On the other, you have people running these funds or offering similar products, saying not to worry. Do you really need to get more deeply into it to know who is more credible?

Icahn's point is simple. The junk ETF's have created enormous demand for high yield, but they offer instant liquidity, so in a downturn, ETF holders could redeem in vast quantities. Someone has to be on the other side of the trade to buy the bonds that will be liquidated. It is not obvious who that might be, and the financial crisis taught us that these accidents tend to create a domino effect.
 
it's Ben's plant o get mo
AAAintheBeltway said:
On the one side you have Icahn, who has been around the block a couple of times. On the other, you have people running these funds or offering similar products, saying not to worry. Do you really need to get more deeply into it to know who is more credible?

Icahn's point is simple. The junk ETF's have created enormous demand for high yield, but they offer instant liquidity, so in a downturn, ETF holders could redeem in vast quantities. Someone has to be on the other side of the trade to buy the bonds that will be liquidated. It is not obvious who that might be, and the financial crisis taught us that these accidents tend to create a domino effect.
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are you sure someone has to be on the other side? They weren't there the night they burned old eur/chf down
 
AAAintheBeltway said:
On the one side you have Icahn, who has been around the block a couple of times. On the other, you have people running these funds or offering similar products, saying not to worry. Do you really need to get more deeply into it to know who is more credible?

Icahn's point is simple. The junk ETF's have created enormous demand for high yield, but they offer instant liquidity, so in a downturn, ETF holders could redeem in vast quantities. Someone has to be on the other side of the trade to buy the bonds that will be liquidated. It is not obvious who that might be, and the financial crisis taught us that these accidents tend to create a domino effect.
More...

Apparently the option expiration on Friday is a big one. Some suspect stops below the market could be taken out.... perhaps down to 1800 on the S&P ? A cascading junk market could exacerbate.
 
debitspread said:
Haven't you been bearish S&P for the past X years?
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If you're talking to me, what? I'm not even bearish now.

I won't turn possibly bearish until the [equities] market actually does something bearish. So far, hasn't.
 
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