EMB and PCY getting absolutely crushed today! That after what occurred in Treasuries yesterday. The rout in Treasuries since their most recent bottom (BREXIT) would qualify as a major rout in so short of a time. And the party in junk munis appears to be over. As for junk corporates, off hand, can't recall historically seeing such a divergence with the equity run as the past five days. So I guess we will be seeing headlines about is the long bull run in bonds (since 1982) finally over. A headline we have seen many times in the past, albeit not with the type of adverse price action we have recently been seeing.
Edit: and the decline in HYD is pretty staggering too today - giving up almost all its YTD gains in one session.
Comments
However, among the group of funds with higher duration/greater pullback, there was something else going on. Some lost alot more than others, some as much as 1.3%. Currency effect, whereby if you had a big position in the "wrong" country, risk premiums for the sovereign increased quickly and bit you hard?
http://www.bloomberg.com/news/articles/2016-11-10/ringgit-slumps-with-korean-won-as-trump-win-fuels-trade-concern
re. HY domestic junk, I don't have a clue what could be banging that. Time will tell, although--- if it were to continue on like back in January--- we could have (another) buying opportunity handed to us.
Here's PCY, discount now of 1.9%, and here's LEMB, discount of 3.4%. From the charts a little way down from the top of the M* page, it looks like these may be the widest discounts ever for both.
Note also the very large trading volume.
Edit: Junkster mentioned HYD - same thing going on there, too.
Looks like some panicky selling happening ... or maybe several big players adjusting allocations at the same time for the new national order? You'd have to bet EM oef's will be down much less than the etf's today.
Edit; well, that was a shock. The open end fared worst than I thought with some of the emerging markets bond funds on my screen down 3% to 5% (OEMYX)
Don't mean to rub it in. But us who has some PRPFX in our holdings are wondering what all the excitement is about?
Just another dull day ... up a modest 0.44%
Gaging by my motley collection of funds, domestic rates must have really spiked the past couple days, causing the dollar to soar and knocking down international bonds badly (as well as domestic bonds). The rise of Mr. T will get blamed, but don't forget that the Fed was pretty much on hold until after the election and may feel free to start jacking up rates soon. People are reacting to that reality as well.
My hunch is there's a lot of over-reaction now. A lot of people will sell bonds and income funds into this rout and regret it in a month's time. Just a guess. (Ya gets what ya pays for here.)
Thanks for clearing that up Junkster. I didn't think you were the fella. There's somebody here who I think has quite a lot of EM and REIT exposure. Ouch!
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(Edit: Corrected earlier misspelling of gaging. I am not yet "gagging" on my funds - but may soon be.)
http://www.bloomberg.com/news/articles/2016-11-11/carry-trades-collapse-as-emerging-market-yield-advantage-shrinks
The duration effect remains rather striking (to me). If dollar-denominated with a short portfolio duration (as many MFs were not), there has been limited damage. e.g. DLENX. Of course, the longer a big shift plays out, the less likely it is that any fund will escape; it will reach the most sheltered, as well as their little dog, too.
The emerging markets action is probably more a factor of a stronger US$, which is due to the increase in treasury yields. If anything, the higher US$, if it continues, will slow the US economy due to lower exports. Then the pressure should be for lower rates!
http://www.forbes.com/sites/petertchir/2016/10/22/the-scariest-chart-for-bond-yields/?utm_source=yahoo&utm_medium=partner&utm_campaign=yahootix&partner=yahootix&yptr=yahoo#69616508ed70