Business

For the first time since August 2008, high-yield bond 'VIX' is greater than US equity 'VIX'. The 1-month implied vol of HYG has surged over 21 - its highest since October 2011. The last time credit's volatility surged above stocks like this, VIX quickly accelerated well beyond 40, pricing in the increased business risk. Furthemore, just as we saw in July/August, the cost of protecting equity markets is beginning to accelerate up to the surging cost of protecting credit markets. Both credit levels and risk suggest VIX is going notably higher.

Dow Transports have been weak all year. Down 18.3% year-to-date, Trannies are set to close lower for a 4th straight quarter for the first time since 1994. Today's plunge broke below the August crash lows and pushed the index into bear market territory...

Just something else to ignore of course... keep buying FANGs

Charts: Bloomberg

The following brief summary of the global economic situation should, once and for all, end all debate about whether the world is "recovering" or is now mired deep in a recession.

From DB's 2016 Credit Outlook

While high-yield bond ETFs have been under massive pressure, some have argued that this carnage has yet to really hit the underlying cash bond market (since the flows are more exchanges between two parties as opposed to redeeming ETFs for actual bonds). It would appear that pattern is changing as today the bloodbath in ETFs is spilling directly into the corporate bond markets themselves with every sector in investment grade and high yield deep in the red.

As Bloomberg noted Friday,

Despite the rear-view-mirror-gazing optimists proclamations that default rates have been low (which matters not one jot when pricing the future expectations of default into corporate bond cashflows), Fitch just released its forecast for 2016 defaults and notes that more than $5.5 billion of December defaults has increased the trailing 12-month default rate to 3.3% from 3% at the end of November, marking the 13th consecutive month that defaulted volume exceeded $1.5 billion, closing in on the 14-month run seen in 2008-2009.