GrowthTurtle
Data Science PhD & IEEE Fellow, Ex-Two Sigma
High-yield credit is set up for a TINA melt-up as real rates near negative, pushing money from cash into risk assets. One-year real rates are under half a point from negative, and the Fed need only stay on pause. A geopolitical shock passed without cracks: junk bonds erased March losses and are up on the year, and the lowest-quality Russell 3000 credits sit near all-time highs. Falling real rates and tighter spreads push capital into speculative corners; a hot core PPI would revive hike talk. x.comÂ
High-yield bonds are losing momentum and look to be forming a failed move higher. Once markets panic, these bonds tend to get crushed as investors switch from seeking yield to seeking safety. x.comÂ
High-yield credit faces indigestion if Oracle is cut to junk. Oracle's 10-year bonds already yield 7%, in junk territory. Per @FZucchi, its CDS rose to 213bp from 50bp last September, and one more rating cut would force investment-grade funds to sell about $140B of bonds into a high-yield market expecting $340B of issuance this year, which could spook stocks and expose risky circular AI financing. Per @KobeissiLetter, investment-grade bond funds just had their largest weekly outflow since 2020. … Show more
Credit tightening and data-center delays threaten the debt-funded AI boom behind the S&P 500. Junk-bond sales fell from $51B in September to $7B in October's first three weeks; CCC yields hit a four-year high, though quality firms still borrowed. Per S&P Global, 146 data-center projects were delayed or canceled, potentially weakening buildout credit. With 40% of the index in 10 names, this is dot-com and 2008 combined; stocks have not caught up, and even good firms may be sold. x.comÂ
US Treasuries remain unattractive despite retail bond-fund buying: Fidelity's Jurrien Timmer reports end investors accumulating bond funds, while retail buyers risk becoming exit liquidity before the debt cycle capitulates. Rising debt and debt-supply-led inflation are expected to push long-end yields higher even after the midterms. Junk-credit stress adds to the risk of a wider debt-market selloff, leaving bonds a risky equity-crash hedge. x.com x.com x.com x.comÂ
Life insurers such as F&G Annuities & Life are carrying very large unrealized bond losses in accumulated other comprehensive income as yields rise. If they ever need to sell bonds early, things could get very ugly, and many also hold a decent amount of private credit. x.comÂ
High debt and rate hikes make a big US equity correction likely. Warsh said nothing useful despite hot CPI and PPI after two weeks of hawkish rhetoric, while the rest of the Fed fence-sits. A debt crisis is incoming, and some funds will blow up soon. Big caps are the last leg; the bigger correction could be something like 20%. It is not a good time to buy dips. x.com x.com x.com x.com x.com x.com x.comÂ
Moody's is one of the world's most beautiful businesses because trusted ratings take decades to establish, protecting its duopoly with S&P and its pricing power. Operating margins exceed 45%, and Moody's Analytics subscriptions make revenue quite resilient when companies issue less debt. Decades of credit-risk data are a huge AI product opportunity; fast-growing private credit also needs ratings. x.comÂ
Investment-grade bonds look worse than junk on the charts, with LQD's chart weaker than HYG's. @zerohedge reports Meta's data-center bonds trading down to B2/B levels, a 7.5% yield, despite an A+ rating, as the market calls the bluff on residual value guarantees. @MichaelMOTTCM adds that the high-yield market is sending a warning. x.com x.comÂ
CoreWeave's record-high credit-default swaps flag risk to the buying case. Liquid Trading says its bonds are distressed and the swaps price in a greater than 50% chance of default within five years. Even so, CoreWeave is a "crazy discount" that needs to recover from recent negative narratives before it takes off. x.com x.com x.comÂ
Diamondback Energy, Coherent, Kaspi.kz and MercadoLibre suit a market where private credit is cracking and rates stay high. Blue Owl halted redemptions at a major credit fund, Blackstone injected $400M to meet withdrawals and BlackRock limited withdrawals from a $26B vehicle. Loans made at near-zero rates face higher refinancing costs as $98 oil from the Hormuz closure limits Fed cuts, while PIK interest masks deterioration. Credit tightening has historically preceded equity market stress. x.comÂ