I will update this I promise later today.
But here a preview in case you are also working this Sunday.
To recap multi decade themes, our problems in our fiat US$ system are about debt and sustaining the exponential ms expansion. Its correct therefore that credit markets should continue to be a lead on what is happening to our asset markets and economy.
Credit markets (or debt markets to you and me) are not sending a healthy message here and are diverging from the run up in equity prices and that is interesting and worthy and worthy of some analysis. Why are they are not confirming the higher highs? Is it simply higher rate expectations or something more?
Firstly, “junk” is having a disastrous time. Is it simply due to higher rates coming soon at the short end? Or is that default rates are about to risk due to the weak international economy and surging US$? We can test which of these it is via the treasuries. At the short end ie 1 to 3 year treasury bills all have no confirmed the new higher high in asset markets. Rates have not made new highs. We can ask if everything is so good in the US economy then a rate rise at the short end is guaranteed surely so why are the short end treasuries not confirming this? Long end remains at very low rates. The yield curve could invert around the 5year mark if yellen increased rates by 25 to 50 basis points, which is telling! Tips is tracking lower which is also extremely interesting and bearish risk.
A good question is if rates are not rising for the short term treasuries why are they rising so quickly for junk bonds? The answer surely has to be its the economy stupid!
Here an excellent report from DB.
Unless you have a passion for FI i would skip to page 35 which gives an excellent account of where we are in the Junk bond high yield credit markets. The recent price action has diverged from risk assets and it appears not to be simply due to rising rates expectations at the short end of the yield curve. Its a good read and is one of the key bubble asset markets at present. Any step change in volatility here should be closely monitored as there is immense contagion threat to other frothy asset markets.
And here MS taking their bullish stance on risk to HY as well on page 9 they run through their bullish argument.
And here Yardeni with some useful charts on global rates.
A work in progress but i point to some reports here to assist.
First up the first 2015 forecast release. Here from CS
There ten top trades are interesting merely in that they do show the current consensus quite nicely in the market.
Even if you agree directionally in the medium term the entry on the short term may be a total reversal of their recommendations i suggest.
And the cs multi market views:
And here the cs macro perspective
And here the cs wealth team:
Here JP with some fund flow comments:
And here a couple of technical additions that were missed on last Tuesday’s release.
Firstly the UBS wealth team getting in on the technical act with their perspectives.
Here the regular GS charts tech release.
Rich