Daily Credit ETF and Index Summary (12.01.25) – Waiting For The Fed

Finally back from vacation and getting this daily piece together again.

Credit has performed very well over the past week, but all the credit indices are starting to (or continue to trade very rich).  IG17 is 7 bps rich, and HYG is trading more than 1% above NAV.  LQD is also close to 1% above NAV and with yield of only 4.06% that is getting hard to justify (in spite of the long duration).  I don’t particularly like any of the credit markets right now, as they have been outpacing the underlying and seem to be getting very “reachy”.  For the first time all year even straight muni’s seem to have gotten way ahead of themselves.  BABS still linger as possibly having some value.

The YTD flows into HYG and JNK have now broken $2.5 billion.  That is a massive inflow, and yet the cash markets and the ETF’s have absorbed it relatively well without too much upside pressure on the market.

Everyone seems to be waiting for the Fed announcement and trying to figure out what the new format (information) will do to the market.

As I mentioned yesterday, the speed with which index traders put out markets after Apple makes me believe the street now is also long once again.  How many people would have guessed after a blow out quarter, stocks would be lower?

I’m trying to get my arms around the possible outcomes for the Greek bonds held by the ECB.  Will they or won’t they take a loss?  If they do, how will they fund the loss?  Will the loss or even discussion of loss dampen the enthusiasm for more SMP?  I think there are ways that this can play out positively and ways it can be extremely negative, but still trying to play with the various scenarios.  In any case, the comments coming out of the ECB and Germany on why they shouldn’t take losses are scarily stupid.  We shouldn’t lose money because we didn’t buy the bonds with the intention of losing money?  It makes me long for the days when Trichet said they wouldn’t take losses just because.  Yes, his answer was effectively, “we won’t take losses because we won’t” and that now actually sounds sensible compared to the latest comments.