{"id":14530,"date":"2015-11-18T08:18:56","date_gmt":"2015-11-18T13:18:56","guid":{"rendered":"http:\/\/olduvai.ca\/?p=14530"},"modified":"2015-11-18T08:23:18","modified_gmt":"2015-11-18T13:23:18","slug":"junk-bonds-under-pressure","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=14530","title":{"rendered":"Junk Bonds Under Pressure"},"content":{"rendered":"
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Junk Bonds Under Pressure\u00a0<\/a><\/h3>\n<\/div>\n
While the Stock Market is Partying \u2026<\/strong><\/div>\n
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There are seemingly always \u201cgood reasons\u201d why troubles in a sector of the credit markets are supposed to be ignored \u2013 or so people are telling us, every single time. Readers may recall how the developing problems in the sub-prime sector of the mortgage credit market were greeted by officials and countless market observers in the beginning in 2007.<\/p>\n

\"oilPhoto credit: Getty Images<\/p>\n

At first it was assumed that the most highly rated tranches of complex structured products would be immune, as the riskier equity tranches would serve as a sufficient buffer for credit losses. When that turned out to be wishful thinking, it was argued that the problem would remain \u201cwell contained\u201d anyway. After all, sub-prime only represented a small part of the overall mortgage credit market. It could not possibly affect the entire market. This is precisely the attitude in evidence with respect to corporate debt at the moment.<\/p>\n

\"1-HYG<\/a>A weekly chart of high yield ETF HYG (unadjusted price only chart) \u2013 click to enlarge.<\/p>\n

The argument as far as we\u2019re aware goes something like this: there are only problems with high yield debt in the energy and commodity sectors. This cannot possibly affect the entire corporate credit market. We should perhaps point out that in spite of this sectoral concentration, problems have recently begun to emerge in other industries as well (a list of recent victims can be\u00a0found at Wolfstreet<\/a>).<\/p>\n

The argument also ignores the interconnectedness of the credit markets. Once investors begin to lose sufficiently large amounts of money in one sector, the more exposed ones among them (i.e., those using leverage, a practice that gains in popularity the lower yields go, as otherwise no decent returns can be achieved), will start selling what they\u00a0can<\/em>, regardless of its relative merits. This will in turn eventually make refinancing conditions more difficult for all sorts of industries.<\/p>\n

…click on the above link to read the rest of the article…<\/p>\n

 <\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

Junk Bonds Under Pressure\u00a0 While the Stock Market is Partying \u2026 There are seemingly always \u201cgood reasons\u201d why troubles in a sector of the credit markets are supposed to be ignored \u2013 or so people are telling us, every single time. Readers may recall how the developing problems in the sub-prime sector of the mortgage […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[6275,151,1851,3995,263,402,1297,6170,690],"class_list":["post-14530","post","type-post","status-publish","format-standard","hentry","category-economics","tag-actingman","tag-commodities","tag-commodity-price-collapse","tag-credit-markets","tag-energy","tag-high-yield-bonds","tag-junk-bonds","tag-pater-tenebrarum","tag-risk"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/14530","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=14530"}],"version-history":[{"count":2,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/14530\/revisions"}],"predecessor-version":[{"id":14532,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/14530\/revisions\/14532"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=14530"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=14530"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=14530"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}