Recap 2014-12-08 : HY in the driving seat


It appears that high yield bonds, once again tracking weaker oil prices, hit other risk assets today. The divergence between high yield (orange below) and equities, (white) which started late last week, has stopped:

CDX spreads are back near the 360 pivot level that has prevailed over the past 12 months, so another gap higher here would likely trigger stops:

The downgrade of Italy on Friday impacted the market today… barely at all. (Italy was closed Fri) Market tone is very bullish for prices here, as focus on ECB QE in 1Q is likely to provide a continued bid.

Some good charts from GS on US Housing from Friday that I missed:

Things are lining up for housing to pick up. But I’m skeptical that the intermediate term demand response will be as robust as some folks think. IMO, whether that response appears is a key factor for long term yields.


  • The trade surplus in China reached an all time high on weak imports. The street thinks the drop in imports has to do with the government crack down on over reporting. The trade surplus was $54.47bn, above estimates of $43.95bn. Exports +4.7% vs 8% expected. Imports -6.7% vs +3.8% expected. Here is the chart, with the 12 month average in pink:

  • Japan Eco Watchers Outlook Survey declined to 44 vs 47 exp and 46.6 prev
  • Japan’s revision to GDP was a surprise lower. Third quarter was revised to -1.9% from -1.6% in the initial estimate. The downward revision of the headline GDP from the initial estimate was due to a larger contraction in capex (-1.5% from -0.9%) and a smaller gain in public investment (5.5% from 8.9%). The surprise is capex, which many expected to be revised up after a strong corporate survey. Some said the survey suggested a revision from -1.6% to 0.0%.
  • Fed Labor Market Conditions Index actually ticked lower to 2.9 vs 3.9 prev as a result of the small tick upwards in the Unemployment rate. The index printed 4.5 for Sept and as high as 7.2 back in April.


  • Mon: Australia NAB Business Confidence
  • Tue: US NFIB, Australia Home Loans, China CPI
  • Wed: RBNZ, Japan Machine Orders, UK RICS House Price Balance, AU Employment
  • Thu: US Retail Sales, Jobless Claims, New Zealand PMI
  • Fri: China Retail Sales, IP, US Core PPI, UMichigan Confidence, Japan Tankan
  • Mon: US Empire Mfg, NAHB Survey, RBA Minutes, China HSBC Mfg PMI,