Presented with little comment but given the seemingly unlimited balance sheet
of the JPMorgan CIO office and the ability to sell as much protection
(implicitly bullish) and gather premium as credit derivative index notionals
soared at an incredible rate, are we stretching the point a little too far to
claim that perhaps, just perhaps, one of the new transmission mechanisms
for the global central banks' liquidity flows is leveraged credit -
which implicitly enables stocks to be supported by lower funding costs and
exhibit the kind of portfolio rebalancing effect that was desired. Perhaps even
more critical is the fact that IG9 (the credit index in question) contains some
of the most worrisome of the major corporate credits and thus the highest
short-interest in stock-land - which implicitly exaggerates any non-MtM-based
entity's ability to create a short-squeeze? Is the entire market now a
function of one prop trader (hence forbidden by the Volcker Rule) being
forced to (un)wind his trade now that he is finally in the public spotlight as
we wonder - are recent market jitters merely the byproduct of Iksil
selling some of his excess exposure, and being the marginal price setter across
virtually every asset class?
This is the net notional risk exposure in IG9 (which has surged around $50bn this year) relative to the S&P 500...
This is not a correlation of one asset class with another but the 'flow' into one asset class (leveraged credit) relative to the stock of another (equities).
Chart: Bloomberg
This is the net notional risk exposure in IG9 (which has surged around $50bn this year) relative to the S&P 500...
This is not a correlation of one asset class with another but the 'flow' into one asset class (leveraged credit) relative to the stock of another (equities).
Chart: Bloomberg
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