Stock traders are contending with an incredibly bad start to 2016. Credit traders are calmly watching from the sidelines.
While stocks globally have posted their worst start to a year since 2000, riskier bonds have remained steady and higher-rated corporate bonds worldwide have returned 0.5 percent in the first three days of the year, according to Bank of America Merrill Lynch index data. Even energy-related junk bonds have somehow posted 0.6 percent returns, even as oil prices plunge to their lowest in more than a decade.
This is, in large part, a case of stocks catching up with corporate bonds, which had a rocky end of 2015, to put it charitably. Riskier corporate debt experienced some of its worst losses since the 2008 financial crisis and is now, on average, yielding about the most since 2010 relative to a comparable measure on the S&P 500.
Something else is going on as well. U.S. credit buyers are finally one step removed from being dominated by the whims of central bankers after last year's rout. After years of riding the momentum of central banks, credit traders can actually pick from bonds that yield more than 10 percent rather than face a sea of debt trading at obviously untenable levels. They have the luxury of going back to their roots of analyzing corporate structures.
Stock traders still seem more tied to the decisions of policy makers around the world. China's slowdown -- and subsequent decisions by its officials to devalue its currency and halt trading -- have rattled U.S. equity investors who are struggling to justify buying stocks at such high levels. In Europe, equity investors are unhappily watching central bankers struggle to ignite growth and are starting to doubt how much more ammunition Mario Draghi and cohorts have left to support last year's equity rally, especially given the souring mood in China.
In the world of credit, however, the world has been gloomy for months. Speculative-grade bonds globally lost more than 5 percent in the last six months of 2015, with a subset of junk-rated energy bonds plunging about 27 percent in the period. The S&P 500 eked out a 0.1 percent gain in the period, and even stocks worldwide lost a relatively mild 3 percent.
Perhaps the debt brokers are missing something, but they're just not seeing the fundamental change in the global economy to warrant a much deeper selloff. Instead, they're gleaning comfort from the lack of complacency that's pervasive globally. After all, where else are investors going to go other than debt? There aren't a lot of good options.
So as stock markets plummet, bond buyers are largely carrying on with business as usual.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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