The credit market is on weak footing so far in 2022. Here's my take what's driving the selling and why not all selloffs are the same, why there's no panic and how to find an entry point..HYG
Wednesday, 5/05/2021 14:14
GOLD PRICES held $10 per ounce higher for the week so far in London on Wednesday, but remained almost $20 below yesterday s test of 3-month highs after US Treasury Secretary Janet Yellen spooked financial markets by saying interest rates may have to rise. Chair of US central bank the Federal Reserve from 2014-2018, Yellen said in a pre-recorded interview released Tuesday that the new Democrat White House s multi-trillion Covid and infrastructure stimulus does involve a re-allocation of resources away from the private sector towards government borrowing. And, you know, it may be that interest rates have to rise somewhat to make sure that our economy doesn t overheat, even though the additional spending is relatively small.
The sudden spike in interest for junk-rated bonds reflects the ongoing reflation trade that has spanned across assets as the economic outlook improves. The improved outlook has weighed on bond markets and set yields soaring higher, but it has also improved demand for relatively lower duration junk bond ETFs.
“What we’ve had in bond markets for much of the year to date is a selloff in duration, which has meant that high yield, which is high spread and low duration, has been the safer asset class,” Peter Chatwell, head of multi-asset strategy at Mizuho International Plc, told Bloomberg. “These flows reflect that, and we expect there will be further moves in that direction as U.S. growth becomes more broad based and helps to support the rest of the world.”
Amid growing concerns that the aggressive stimulus policies will fuel a spike in inflation, exchange traded fund investors have been dumping fixed income assets.