Two big ETF mysteries appeared today 10/01/09

B

brettman9

First, the corporate bond fund etfs, HYG (Junk) and LQD (inv grade), were down huge. But our fixed income analyst went through the bloomberg for an hour and found no signs of weakness in those markets. Basically, corporate debt traded higher in most instances. I have no idea even where to begin to explain this. If you look at the HYG and LQD charts, today looks like a bond panic...and yet a fixed income analyst could find no signs of it in the individual issues? No signs at all. Very weird.

Second, VXX rallied close to 5% while the VIX was up about 10.5%. I know VXX tracks the front 2 months of Vix futures, but I have a tought time believing that there was that much of a disparaty today between spot and futures. I could be wrong about this. I need to check the data at the office tomorrow because I'm home now and don't have the contracts here. But it seems like this etf has some explaining to do.

I think the first of these mysteries is more...mysterious. But both are troubling.
 
Quote from gkishot:

No problem with VXX.
More...

Oh good. Can you elaborate.

I'm hoping this means you have the VX cboe data in front of you and can see that the spot ran way ahead of the futures today. But i'm not sure from your response.

Thanks
 
5.9% up for the front month.
2.7% up for the second front month. Besides VXX tracks a benchmark index. I don't remember it's name but you can look it up in VXX prospectus.
 
Quote from gkishot:

5.9% up for the front month.
2.7% up for the second front month. Besides VXX tracks a benchmark index. I don't remember it's name but you can look it up in VXX prospectus.
More...

Thanks.

btw, it tracks the short-term futures index.

VXX is named the "iPath S&P 500 VIX Short-Term Futures Index ETN"

...and the "the S&P 500 VIX Short-Term Futures™ Index TR offers exposure to a daily rolling long position in the first and second month VIX futures contracts".

So that solves it. Once again, thx.

The corportate debt mystery remains. And I would love to figure it out.
 
Quote from brettman9:

First, the corporate bond fund etfs, HYG (Junk) and LQD (inv grade), were down huge. But our fixed income analyst went through the bloomberg for an hour and found no signs of weakness in those markets. Basically, corporate debt traded higher in most instances. I have no idea even where to begin to explain this. If you look at the HYG and LQD charts, today looks like a bond panic...and yet a fixed income analyst could find no signs of it in the individual issues? No signs at all. Very weird.

Second, VXX rallied close to 5% while the VIX was up about 10.5%. I know VXX tracks the front 2 months of Vix futures, but I have a tought time believing that there was that much of a disparaty today between spot and futures. I could be wrong about this. I need to check the data at the office tomorrow because I'm home now and don't have the contracts here. But it seems like this etf has some explaining to do.

I think the first of these mysteries is more...mysterious. But both are troubling.
More...
Nobody, except the Fed, has money to buy bonds.

Banks and individual investors are broke.

The Fed is buying more than half of the T-Bond auctions. How long this may continue is unknown.
But deleveraging continues at corporate bonds.
 
Quote from crgarcia:

Nobody, except the Fed, has money to buy bonds.

Banks and individual investors are broke.

The Fed is buying more than half of the T-Bond auctions. How long this may continue is unknown.
But deleveraging continues at corporate bonds.
More...


Okay...does anyone else have any thoughts on why it is that bond etfs sold off sharply on a day when corportate debt seems to have held up? Preferably ideas of a more...how shall I say...relevant nature?

As an aside - and just for the sheer fun of a futile exercise-- money (non government capital) has flown into US corporate debt over the past 6 months basically like never before in history. Money into bond mutual funds alone is something like a quater trillion dollars (as compared with about a tenth as much going into stocks). The reasonable explanation for this is a combination of the rebound from a crash in credit markets and what appears to be a structural change in US corporate finance, whereby companies seem to have been traumatized by the failure of access to commercial paper markets and have begun to lean more heavily on longer-term flows so that a relapse would not paralyze them in day-to-day operations. But thanks for you insightful commentary.

Of course, none of this could be more irrelevant given the point at hand were it to be commentary about treasuries, or something else completely and utterly beside the point.
 
Quote from brettman9:

First, the corporate bond fund etfs, HYG (Junk) and LQD (inv grade), were down huge. But our fixed income analyst went through the bloomberg for an hour and found no signs of weakness in those markets. Basically, corporate debt traded higher in most instances. I have no idea even where to begin to explain this. If you look at the HYG and LQD charts, today looks like a bond panic...and yet a fixed income analyst could find no signs of it in the individual issues? No signs at all. Very weird.
More...

Could this be a case of both ETF's going ex-dividend? From ishares website:

HYG $ 0.705 Dividend Oct. 1
LQD $ 0.472 Dividend Oct.1

plus, going from a premium to NAV back to near par?

iBoxx $ Investment Grade Corpora...
LQD
Last Trade: $106.20
NAV: $105.55
Mid-point: $106.61
Premium/Discount: 1.0065%
Trading Volume: 3,051,240
Previous Close: 09/30/09

iBoxx $ High Yield Corporate Bon...
HYG
Last Trade: $85.64
NAV: $85.07
Mid-point: $86.33
Premium/Discount: 1.4780%
Trading Volume: 3,014,772
Previous Close: 09/30/09
 
Quote from bidwell:

Could this be a case of both ETF's going ex-dividend? From ishares website:

HYG $ 0.705 Dividend Oct. 1
LQD $ 0.472 Dividend Oct.1

plus, going from a premium to NAV back to near par?

iBoxx $ Investment Grade Corpora...
LQD
Last Trade: $106.20
NAV: $105.55
Mid-point: $106.61
Premium/Discount: 1.0065%
Trading Volume: 3,051,240
Previous Close: 09/30/09

iBoxx $ High Yield Corporate Bon...
HYG
Last Trade: $85.64
NAV: $85.07
Mid-point: $86.33
Premium/Discount: 1.4780%
Trading Volume: 3,014,772
Previous Close: 09/30/09
More...

I don't think so. The gap, maybe. But these were strong intraday downtrends. And, in the case of HYG, something like 3x avg volume after you filter out the 1.5 mln block after the close.

I noticed an 8k about changing the inclusion requirements by ishares...but the kicker is, JNK, which is a junker from barclays, showed the same type of action, and I can't find any similar change announcement.
 
speculation. market is a casino. I wanted to short those things too last week, I figured it could still go a bit higher for a few days, then I forgot about it. How dumb. Basically I think those ETF's have become the tail wagging the dog.

What do you use to track the corporate bond market ?
 
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