The rout in bonds today is a real problem.
US 10-year yields have extended the increase to 9 basis points, hitting 3.58%. The likely trigger today was the awful PPI report in Germany at 45.8% vs 37.1% y/y expected. That raises they risk the ECB will have to hike the bloc into a brutal recession.
Where the rubber really meets the road in bonds isn’t in pensions switching out of equities to fixed income allocations (though that’s certainly happening, as BofA reported today) it’s in business activity slowing down.
The junk bond market appears to be freezing up. Today, Tellurian ($TELL) pulled a proposed bond issuance. These were proposed 11.25%, 5-year notes alongside warrants. The company didn’t offer an explanation but it’s an LNG exporter and that’s possibly the single hottest spot in the entire globe right now. If they can’t raise money, who can?
That’s not to say the company doesn’t have problems, investors have cried poor governance and a plant would cost $11 billion.
At the same time, junk spreads aren’t blowing out more broadly. They tightened yesterday and over the past 10 days but new deals are tough to fund. The $16.5 billion LBO of Citrix is going to be expensive. IFR reports that earlier talk was 8.5-9% but that’s moved up to 9.5-9.75% and is due to price today.
This is a market that’s crying out for help from the Fed and if Powell doesn’t offer any help, this could be just the beginning.