If the market was genuinely bearish we should see material movements in risk indicators such as credit default swaps. Yet they have hardly budged, at least not as much as I thought they would if they were genuinely bearish. From the chart below the uptick in the Corporate CDS Index is nothing out of the ordinary……above 125 and we would have to conclude that there has been a change in trend – but until then it is bullish business as usual.
Markit US Corporate CDS Index
Of course related to the chart above is the behaviour of Junk Grade bonds. They have yet to show any material weakness at least any behaviour that suggests a change in trend.
T Rowe Price High Yield Fund (PAHIX)
You may also like to look at the behaviour of the Bloomberg Financial Conditions Index. We see the weakness in equities as a buying opportunity – at least while the charts above hold out.
