Contagion: Credit Crashes To 14-Month Wides Amid Soaring Outflows

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Yesterday saw rate vol start to accelerate, and today we see credit markets start to snap as equity market volatility contagion is spreading.

In fact, credit market volatility is spiking – and is above the Aug 2015 highs (higher relative to stocks where VIX remains below those levels)…

This is the biggest spike in High Yield bond spreads since Aug 2015’s crash and raises relative funding costs to their highest since Dec 2016…

It’s not just equities that are seeing fund outflows surge.

Junk bond ETFs have seen only 2 days of inflow in 2018, and outflows are accelerating as prices plunge.  IG bond ETFs have also seen outflows for 6 of the last 7 days…

And judging from the discount to NAV, there is more ‘physical’ selling to come in corporate bonds (as managers use JNK as their overlay, then selectively sell into illiquid markets…

And one might wonder how much longer the S&P will hold its gains?