06 May 2016 by lberuti
Thin liquidity is not helping current market confusion. On the one hand, credit has been drifting wider all week long. In the US, outflows in the biggest High Yield Corporate Bond ETF (the iShares HYG Index) are getting out of control. They amounted to more than $3bln over the last 5 days, or 17% of total AUM! US data continue to disappoint with labour market showing signs of weakness. Therefore flows are dominated by investors taking chips off the table. On the other hand, the labour market is a key indicator of FED’s forward guidance and, after today’s disappointing NonFarm Payrolls number, it is now likely that rates will remain on hold in the US at least until September – the probability of a hike in June implied by the price of future contracts stands at 2% -. That could contribute to put the market right back in its assisted comfort zone. We will see next week whether the recent trend wider is confirmed with the expected pick up in flows.