While the furious tape painting attempt into quad witching continues courtesy of a surging EURUSD, which we anticipate will sell off shortly once again, as tomorrow brings absolutely nothing actionable out of Greece, a better indication of what is happening in the market are the High Yield ETF JNK/HYG which both were just been punched out. It is unclear if this ETF was the plaything of some HFT algo (we will follow up with Nanex shortly), but it appears that these ETFs would have been a direct casualty had the sell off continued after 3pm, at which point the bidside of the Level 2 order book essentially disappeared, and the only thing that prevented an epic collapse was central bank purchasing of the EURUSD which lifted the entire market. Yet what is nonetheless quite bad for holders is that the JNK/HYG has now taking out not only 2011 lows, but lows unseen since September 2010. The ETFs tend to be a good proxy of the actual cash HY market as can be seen in the second chart below. Which is why we send our condolences to all HY fixed income hedge funds which are about to be dealing with some very substantial margin calls. The crash may have been delayed but has not been prevented.
Intraday:
And comparing the HYG to the HY CDX index:
on Thu, 06/16/2011 - 16:01
#1375652
There has been an arb here for 3 days, can't believe it took this long to pick it up. HCDX16 was extremely cheap spread to HYG/JNK for the last three days.
All it takes is a lack of liquids for these to come out. When you only have 5-6 trades on the cash side and 300 on the synethic side something has to give. Full disclosure I did clean this out and these aren't the greatest shorting vehicles because of the carrying costs.