Business

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?

Just as we warned, the collapse of the high-yield market has spread contagiously to the investment grade market as selling begets selling and redemptions need to be met from what you can sell, not what you need to sell (but can't). LQD (the investment-grade bond ETF) is getting hammered today, breaking to its lowest in almost 2 years.

As Europe closed, HYG managed to stabilize but the selling accelerated in LQD (the investment-grade bond ETF)...

Cracking LQD below recent lows to 2-year lows...