Junk Bond Sell-Off Deepens With Energy Hit the Hardest By Virus

  Comments of the Day 28 February 2020     Video commentary for February 27th 2020   Eoin Treacy's view A link to today's video commentary is posted in the Subscriber's Area.  Some of the topics discussed include: stock market sell-off intensifies with major indices in the region of their trend means. gold quiet, oil weak, high yield spreads widening, Treasuries firm, unwinding of carry trades is boosting the Euro and Yen.      Kass: Danger but Opportunity as Well Thanks to a subscriber for this article which may be of interest. Here is a section: So, let's examine the non consensus view - some reasons why I have started to do some buying: * China has moved on. Coronavirus cases are down and its stock market is well off the lows. (Interestingly, today the China H share Index and the Hang Seng closed up on the day.) Will this be the blueprint for the rest of the world as well? * When China sneezes... The last two major selloffs in U.S. equities were China-induced (devaluation fears and a trade war with the U.S.) - these proved to be great buying opportunities. * A point of maximum fear? There are many examples of this - Dr Roubini in the Financial Times, Mohamed El-Erian on CNBC, etc. "This time is different." But will it be? * Market structure systematics created a perfect storm. We entered into this selloff with CTAs near record long with a need to sell substantial sums of stocks if the market inflected. This has more or less been absorbed now. * Corporate buyback bids could trump systematic supply at this point. * Volatility has spiked and the market may be pricing "guaranteed" panic. * Speculation is no longer running amok and the "everything bubble" has been pierced. Stocks like SPCE, downgraded by Credit Suisse this morning (and many others) are in free fall now - erasing much of the recent gains as speculators run to the hills. * As discussed in yesterday's "After The Fall" and "Brokedown Palace", stocks are swiftly moving towards oversold as market and economic expectations have quickly soured. * If the old narrative comes back - it looks more sold than ever with yield gap support (and a 10 year U.S. note yield of 1.31%) coupled with a President Trump reelection (despite Sanders' ascent) at the highest probability this year. * If financial TV and "talking heads" are viewed as a contrary indicator - the confident Bulls of only 1-2 weeks ago have confidently reversed their bullish views and now see little opportunity to buy.(Reminding us of Divine Ms M's wonderful phrase, "Price has a way of changing sentiment.")    Eoin Treacy's view There is no doubt that short-term oversold conditions are rapidly replacing short-term oversold conditions and a significant number of global stock market indices are back trading at areas of potential support. It is therefore a logical time to begin to think about where opportunities may reside.     Eye on the Market February 2020 Thanks to a subscriber for this report from JPMorgan. Here is a section:   Eoin Treacy's view A link to the full report is posted in the Subscriber's Area.  The graphic of mortality versus contagion included in the appendix of the report is the best one yet comparing COVID-19 with other killers. The proximity of the Spanish flu to the range of potential outcomes from the new virus is obviously a topic of conversation. The Spanish flu came in three waves, in Spring 1918, Autumn 1918 and Winter 1919 and disproportionately killed young people. COVID-19 on the other hand tends to most kill people with compromised lung function and older people.     Junk Bond Sell-Off Deepens With Energy Hit the Hardest By Virus This article by Paula Seligson for Bloomberg may be of interest to subscribers. Here is a section: Energy led the decliners as oil prices fell below $47 a barrel, while bonds of rental car Hertz Global Holdings Inc. slumped as much as six cents on the dollar. Leveraged loans tied to American Airlines Group Inc. and Travelport Worldwide Ltd. also slipped. The high-yield CDX index, which trades on price, was down a full point at one stage. High-yield bond investors are trying to assess the big unknown: whether the coronavirus will be just a short-term problem if it can be contained, or, far worse, turn into a pandemic that could pose a long-term drag on the economy and spark a recession. “The sell-off is accelerating,” said William Smith, a portfolio manager at AllianceBernstein. “Initially we were seeing more weakness in liquid securities, but today there are multiple situations where bonds are down more than five points.”   Eoin Treacy's view Riskier credits are less well able to ride out earnings volatility than better capitalised companies. That’s generally why they need to discount their bond offerings. Spreads in the sector were priced for near perfection heading into the end of 2019 as the stock market continued to rebound following the provision of $400 billion in stimulus to the repo market. The potential knock-on effect to demand for consumer products resulting from the virus scare is an obvious risk.     Eoin's personal portfolio: commodity long initiated February 18th 2020   Eoin Treacy's view One of the most commonly asked questions by subscribers is how to find details of my open traders. In an effort to make it easier I will simply repost the latest summary daily until there is a change. I'll change the title to the date of publication of new details so you will know when the information was provided.