High Yield Bonds Are Flashing Red Again | Zero Hedge - Galt's Gulch

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High Yield Bonds Are Flashing Red Again | Zero Hedge

Posted by straightlinelogic 9 years, 9 months ago to Economics

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The same thing happened in 2007 before the stock market topped out.

SOURCE URL: http://www.zerohedge.com/news/2014-07-18/high-yield-bonds-are-flashing-red-again

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Posted by richrobinson 9 years, 9 months ago

A correction is normal and considered healthy. I think the Fed and this administration fear that it will expose the weakness of the economy and the Obama mystique will cash and burn.

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  Posted by CircuitGuy 9 years, 9 months ago
  
  President Obama could not have been any luckier with timing. (Humans like to think things will large consequences have similarly large causes, but I think this was pure random chance.) A bad recession hit just before the election of '08. It helped him win. The cycle goes forward, and we entered recovery and expansion. The period of the cycle is generally > 4 years, so it worked out great for him. I suspect the expansion will go on for years, but if I could predict at all I'd be rich from trading options on the major indices, and I'm not. If the expansion ends before the election, the president will get the wrongful blame just as he gets the wrongful credit right now.
  
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    Posted by richrobinson 9 years, 9 months ago
    
    He was lucky with the timing of the 08 collapse and Mcains terrible response to it. I think he should get the blame for the next recession. Manipulating the markets and strangling businesses with higher taxes and regulations never ends well. I still believe the President is in over his head and we are going to pay a steep price for that.
    
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      Posted by CircuitGuy 9 years, 9 months ago
      
      I don't think the president has almost anything to do with it. Recessions/expansions come every few years. We don't need to assign blame/credit to each one.
      
      We had our first baby in Aug of 2008, so I don't recall much of the election, but I remember McCain saying how we're talking about housing crashing the economy, but a third of homeowners don't have mortgages. Of those who do, the majority are modest mortgages they can afford. This whole problem started with a few people going in over their heads. I strongly agreed.
      
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        Posted by richrobinson 9 years, 9 months ago
        
        Assigning blame means we recognize what caused the problem. we do have natural cycles but they become more pronounced when the Feds micro-manage as they did during the Carter years. When the 08 crash hit Mcain suspended his campaign and returned to Washington. Obama jumped on this and said a President needed to handle more than one thing at a time. During a press conference with Bush, Obama blamed Wall Street and greed for the crisis. Mcain said he hoped they could reach a bipartisan solution to the problem. he never recovered. This administration has doubled the national debt and passed Obamacare which businesses are still trying to figure out and decipher it's impact. He has strangled the recovery and set us up for a greater recession.
        
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Posted by CircuitGuy 9 years, 9 months ago

This is very interesting. My first thought was this is just a result of a steepening yield curve. Market participants predict rising inflation and rising real returns. This thought of mine is wrong, though, because when I look up Treasury yields they've gone *down*. That suggests a bearish if flight to quality.

As you say, people think of debt and equity investments as completely different, but they're not since you can issue equity to retire debt and vice versa. The big difference I see is rate risk, but if rate risk were responsible we'd see Treasury yields rising too.

What are "shrink-floating" manipulations? If the rising junk bond yields are due to the market's responding to real credit risk, then why haven't equity investors figured this out and responded likewise?

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