Credit markets signal danger if HYG continues below 84
HYG can be used as a proxy to indicate health of U.S. credit markets, which is an economic backbone. Since my recent post about macro indicators, HYG has fallen further. You can see on chart that every move below 84.00 corresponds with a market downturn. So if January stock market declines happened as HYG kept going below 86 and 85, you can imagine greater market declines if HYG keeps falling. IF, keyword.
Further, this fits with the Fed statement that asset purchases will be reduced. Less systemic liquidity will drop markets. Junk bonds are seeming less attractive. Corporate credit tightens when Fed reduces liquidity. Applied to consumer credit, the nonstop loan and credit offers flooding mailboxes in 2020 have stopped (okay, greatly reduced).
I will be buying March expiry puts if HYG breaks 84.
Further, this fits with the Fed statement that asset purchases will be reduced. Less systemic liquidity will drop markets. Junk bonds are seeming less attractive. Corporate credit tightens when Fed reduces liquidity. Applied to consumer credit, the nonstop loan and credit offers flooding mailboxes in 2020 have stopped (okay, greatly reduced).
I will be buying March expiry puts if HYG breaks 84.
Comment:
Claification. I am not buying HYG puts. I meant I will be looking for March expiry puts on stocks and indexes if HYG breaks 84, which it has.
www.etf.com/HYG