Business

Small doors, large crowds. Amid yet more liquidations (Brazilian Bank BTG flushing its European credit exposure and Lucidus US HY fund), the large high-yield bond ETFs are tumbling in pre-market as two years worth of under-water easy-money trend-followers head for the exits from the "highly liquid" ETFs.. . and crush what little liquidity there is in the underlying. When will The Fed step in and buy US HY debt to stymie "fire-sale" prices?

This will be the 8th drop in the last 9 days...

As MacroMan noted earlier,

Earlier today, a third HY domino fell as the $900 million Lucidus Capital Partners announced that after an October redemption request by a “significant investor,” the fund has liquidated and will return money to investors. 

If you’re a Lucidus investor or counterparty, CEO Christon Burrows “thanks you for your support.”

The Lucidus liquidation comes on the heels of last week’s news that Third Avenue and Stone Lion Capital have suspended redemptions in a (likely futile) attempt to avoid going down in history as the guys who started the HY firesale. 

• Oil prices drop towards 11-year lows on worsening glut (Reuters)
• Third Avenue Seen by Top Investors as Fueling More Carnage (BBG)
• Lucidus Has Liquidated $900 Million Credit Funds, Plans to Shut (BBG)
• Investor nerves tested with yuan, oil, Fed in play (Reuters)
• Junk Bonds Stagger as Funds Flee (WSJ)
• Seattle lawmakers set to vote on allowing Uber, other drivers to unionize (Reuters)
• The Mystery of Missing Inflation Weighs on Fed Rate Move (WSJ)
• Trump’s Rise Enabled by Decades-Long Slide for the Middle Class (BBG)

Last week, the world began to wake up to the fact that all of the “Chicken Littles” screaming that the sky is falling in high yield were right. 

One of the biggest disconnects in the market in recent years has been the unprecedented divergence, shown below, between stocks and (initially) junk bonds, although the weakness is spreading across all fixed income verticals.

That all changed last week when the very same mutual and hedge fund gating shockers that unleashed the 2007 crisis made a very unwelcome appearance, leading to a very unpleasant episode of deja vu even among equity investors who until this point were happy to keep their heads planted firmly in the sand.