25.11.2021
Beware High Yield
The iShares ETF tracking US High Yield is once again being driven by macro factors after 3 months out of regime.
It is also below macro model value. The latest widening in HY credit spreads leaves spot HYG 1.4 sigma or 0.9% cheap to model. While that FVG is towards the bottom end of recent ranges, model fair value is trending lower. When fundamental macro conditions continue to deteriorate as they are currently, Fair Value Gap signals come with a health warning.
It is worth comparing the US High Yield model to its Asian equivalent. The iShares Asian High Yield ETF AHYG is in a strong macro regime but, in contrast to the US, it screens as rich to model. A +1.1 sigma FVG means it is 6.9% above macro fair value.
Like US High Yield, macro fair value is trending lower. The recent bounce in AHYG has not been supported by macro factors, but by flows – the ETF has seen a surge of inflows of late.
In Asia, hopes Beijing eases policy to help the property sector has prompted a wave of bottom fishing in AHYG. Thus far, the flow-induced rally exceeds any improvement in macro fundamentals. The macro environment is also poor for US High Yield, but there spot HYG has priced in a fair degree of bad news.
In Asia, hopes Beijing eases policy to help the property sector has prompted a wave of bottom fishing in AHYG. Thus far, the flow-induced rally exceeds any improvement in macro fundamentals. The macro environment is also poor for US High Yield, but there spot HYG has priced in a fair degree of bad news.
