No Return To “Risk-On” In The Corporate Debt Bubble

Gold is down again today but the yen up past 119 toward 118.5; and the real crashing under 3.8 now. In other words, as yesterday, the “dollar” market is somewhat mixed. That view, however, is somewhat deceptive as the absence of further “dollar” pressure does not equate to renewed optimism and a serious move back near funding normalcy. A stroll through the corporate debt bubble confirms that risk is not anywhere close to “on” and that raw concern remains even if there isn’t urgency right now.

Typically, after heavy liquidations there is an almost immediate resurgence; the point of bargain hunters seeking capitulation points. There can be no doubt that from early to late August the “dollar” was causing all manner of liquidations almost everywhere, but quite acute in the junk bubble. In the almost two weeks since August 24/25, there has been a notable lack of enthusiasm to repurchase or acquire bargains despite the liquidation easing. For all the diminishment in forced selling there is no massive wave of buying either; a relevant stalemate that suggests that something other than capitulation.

Instead, the price histories of corporate junk and leveraged loans are showing that the major disruptions of August might have only been the latest ratcheting as risk perceptions continue to align (or be forced to align) with the “dollar” view.

Retail junk bond prices continue to be desperately offered, while companion proxies for liquidity (particularly, with REM, in MBS liquidity which I believe has been an important pressure point as noted in MBS repo) aren’t much changed at all from the August 24 liquidation surge.

Institutional pricing is showing the same character, which further points to that last selling/”dollar” run not as the actual end reset in leverage and risk but rather more of perhaps a “catch up” in

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