Something has changed…

For months high yield bond yields have been compressed alongside rising stock prices as the flood of global liquidity from central banks.

ECB buying has driven European junk bond yields below those of US Treasuries and in turn that has pressured global high yield risk lower – despite a rise in leverage to record highs.

However, the last two weeks have seen a big shift in flows as investors have fled high yield funds and pushed into investment grade and Treasuries.

And that has led to a plunge in high yield bond prices…

Not playing along with stocks…

And this time it’s not some idiosyncratic sector-specific selling as we saw in Energy HY previously.

And a dramatic decoupling between equity and credit risk-

This is the first major divergence between credit and equity markets since early 2016’s global growth scare.

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Bonus chart: It’s not just credit risk that has decoupled from stocks, equity protection costs have too…