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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.

When last we checked in on BTG Pactual, “people were afraid.”

Why? Because the once proud investment bank that billionaire Andre Esteves boasted would be “better than Goldman” is scrambling to raise cash after Esteves’ arrest prompted investors to pull nearly half of their money from the bank’s fixed income funds and triggered a harrowing decline in the company’s equity and debt. 

When Third Avenue's junk bond mutual fund suddenly liquidated and gated investors late last week, many wondered how can the multi-billion asset manager do this without getting a pre-approval - or frankly any comment - from the SEC first as it should, and parallel to that: how can the SEC not have any idea whatsoever about just how woeful the liquidity conditions and redemptions at the funds it supervises are.

We are about to find out.

For anyone who managed to avoid Goldman's "can't miss" recommendation and get short the EURUSD two weeks ago ahead of the ECB's stunning disappointment which sent the pair soaring and crushing virtually every macro hedge fund and FX trader, Goldman's Asset Management group has another recommendation just for you.

In case the fine print is a little too small, here it is in normal font:

High Yield & Bank Loans: We have increased our overweight in high yield.

Why?