Junk-Bond Spreads & BBB-Bond Spreads Blow Out Past Lehman-Bankruptcy Levels

Frazzled by the sudden appearance of Financial Crisis 2, the Fed scurries in every bailout direction.

By Wolf Richter for WOLF STREET:

Corporate bonds have come under serious stress, starting on February 24 and building in a crescendo over the past 10 or so trading days. During this sell-off, credit-risk concerns are suddenly shooting to the top, as bond prices are dropping, and yields are surging. Financial stress is spreading. This turmoil makes it more difficult and more expensive for companies to raise funds by issuing new bonds.

And yield spreads have blown out. The spread is the difference between the yield of a corporate bond and the yield of a Treasury security of equivalent maturity. This way, the spread measures credit-risk concerns, as Treasury securities are assumed to be nearly free of “credit risk,” since the Fed’s printing press can always print the US out of a default.

These credit-risk concerns have blown out suddenly.

The average spread of bonds rated BBB widened to 3.68 percentage points as of last night (ICE BofA US BBB Effective Yield Index). BBB is the enormous and ballooning $3.3-trillion category of “investment-grade” bonds just above “junk” that everyone is fretting about. And this spread of 3.68 percentage points is the magic number that the index blew through on September 15, 2008, the day Lehman Brothers filed for bankruptcy:

Everyone is fretting about the BBB category of bonds because it’s so huge – it accounted for about half of all investment grade bonds – and because many of these bonds are going to be downgraded to junk during a downturn. So here we are.

The BBB category is continuing to get new entrants from the top down. For example, it will get Boeing. Earlier this week, and at least a year too late, Standard & Poor’s downgraded Boeing – which has been in an existential crisis after it blew $43 billion on share buybacks – to BBB.

These BBB-rated bonds, by their sheer mass of $3.3 trillion are thickly populating every investment-grade bond fund. And they have sold off sharply since February 24. Companies in that category find it now difficult and much more expensive to issue new bonds to raise new money to service existing debts.

At the next step down, the lovely moniker “junk bonds” applies. It covers a broad range of about $1.3 trillion of bonds with ratings ranging from just below “investment grade” to bonds that are about to default or are already in default. This includes names such as Tesla, Netflix, Ford, many airline bonds, and toward the bottom, much of the collapsing shale oil-and-gas sector.

On Standard & Poor’s ratings scale, the junk-bond range starts with BB+ (non-investment grade speculative) and spans the BB and B ratings below it, CCC+ (substantial risk), CCC (extremely speculative), CC and C (default imminent, little prospect for recovery), and finally D for default (here is my cheat sheet for bond credit ratings).

In the BB category of junk bonds, the average spread widened to 6.70 percentage point as of last night, which is the spread that the index blew through on September 25, 2008, ten days after the Lehman bankruptcy. During the peak euro debt crisis in October 2011, the spread also revisited that level:

What does this look like for individual bonds?

It looks ugly. For example, in the B category are Tesla’s 5.3% 10-year notes due in August 2025. The issue is rated B- by S&P. Its yield spiked from 4.0% in February at the time of the WTF chart of the year, to 10% today, as its price plunged 22% from 104 cents on the dollar to 81.5 today. That’s what this means for individual bonds (yield chart via FINRA/Morningstar):

This turmoil all around, including in the bond market, has produced large losses for the biggest asset holders. And they squealed for the Fed to unleash the bailouts. Then there’s the threat of ultra-easy credit getting a little tighter and more expensive for Corporate America, the threat of spillovers from the repricing of stocks and bonds to other markets, plus pre-existing turmoil in the repo market, and the threat all this could pose to the banking system.

So the Fed has rolled out all kinds of bailout programs for companies, the corporate bond market, the corporate paper market, banks, money markets, the US Treasury market, the MBS market, and the like, trillions of dollars.

These programs are now bigger than what they had been during Financial Crisis 1, and the Fed is front-loading, and what took months to roll out during Financial Crisis 1 now took only a couple of weeks.

That’s what you get when a virus hits the totally over-ripe Everything Bubble – the biggest bubble the world had ever seen, the one that the Fed had spent a decade inflating and denied ever being able to see – which had already started to come apart at the seams late last year.

If the Fed hadn’t spent a decade inflating such a mind-blowing Everything Bubble (that had already begun to wobble), the financial reactions wouldn’t be nearly as chaotic. ReadTreasury Market, Gold Go Haywire as Fed Struggles to Contain What’s Turning into Financial Crisis 2

Enjoy reading WOLF STREET and want to support it? Using ad blockers – I totally get why – but want to support the site? You can donate. I appreciate it immensely. Click on the beer and iced-tea mug to find out how:

Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.

  191 comments for “Junk-Bond Spreads & BBB-Bond Spreads Blow Out Past Lehman-Bankruptcy Levels

  1. kk
    Mar 19, 2020 at 6:35 pm

    What happens when the biggest bubble in history bursts?

    • Thomas Roberts
      Mar 19, 2020 at 6:59 pm

      All the 401k plans start to go bust, what remains of each plan, will quickly be drained out by those currently on the receiving end of it.

      Economic depressions and various new political movements will pop up around the world.

      It was predicted for this coming economic recession/depression “before coronavirus though” at first the us dollar does super well, later on it crashes.

      After these first 3 things happen, alot follows, but what? Is anyone’s guess.

      And more! Coming to a country near you! Soon!

      • Trailer Trash
        Mar 20, 2020 at 8:00 am

        In my head I am hearing that deep, dark movie trailer voice saying, “In a world, where dollars fall from the sky like confetti…”

        • Thomas Roberts
          Mar 20, 2020 at 12:40 pm

          No-one, especially now that coronavirus is mixed in with the recession, knows how the us dollar will be affected long term; but, so far, it does seem to be doing very well and later on it will probably crash, at least to some extent.

          If China starts to decline substantially sooner rather than later, it might save the us dollars status as the Premier global currency.

          Alot is in play. China almost definitely screwed long term though.

    • DV
      Mar 20, 2020 at 5:14 am

      Norway’s Wealth Fund has shrunk from 1.2 trillion to 880 billion, that is a loss of 320 billion! Or about 25 percent. Norway is supposed to be the most protected nation with its small population, oil and gas reserves, huge Wealth Fund, etc. But its currency has become the most volatile in the world, hitting 12 to Dollar, I remember times when it was 6 and it was 8 in 2010 for sure.

    • DV
      Mar 20, 2020 at 5:17 am

      I hear that the cumulative loss in the total demand has been so far 20 trillion out of 90 globally. Can anyone print as much?

  2. Iamafan
    Mar 19, 2020 at 6:37 pm

    Just got a robo call from our Mayor. As of 5pm, 7 in Stamford hospital. 2 dead in New Canaan from the virus. If this thing is happening everywhere, who will buy stocks?

    • MCH
      Mar 19, 2020 at 6:41 pm

      algos… my friend, algos… in case you didn’t know, well, you probably didn’t, the machines already control most of the money in the world…. people just have the illusion of control.

      • Wisdom Seeker
        Mar 19, 2020 at 7:24 pm

        BS. People still decide which algos to run, and when to stop running them. And it’s people that are the beneficiaries (or losers) of the algo’s outputs.

        • MCH
          Mar 19, 2020 at 8:44 pm

          Of course, little human, you make all the decisions, you are the decider… wink wink.

          You are the one who call the shots. Seriously… :)

      • polecat
        Mar 19, 2020 at 8:12 pm

        Sounds like Skynet should be operational soon.

        Will the Fed now finally get Terminated ??

        • Implicit
          Mar 20, 2020 at 11:11 am

          Skynet itself needs termination due to the harm it did in the future; thus, the reason to go back in time before the debt to stop it from coming into existence by electing Ron Paul.

      • Kerry
        Mar 20, 2020 at 12:09 pm

        People just do not get it…

      • Professor James
        Mar 22, 2020 at 12:32 pm

        It’s probably useless to point out, but unless one has any kind of statistics on who is using Algorithms, and how much exactly they account for in volumes of trading, the rest of comments about them are just pure opinion.

    • Cas127
      Mar 19, 2020 at 7:25 pm


      Stats show only 200 Nationwide dead so far, out of 320 million.

      Confirm that mayor of 1 small City reported 1 pct of all US deaths, in one day.

      • Wisdom Seeker
        Mar 19, 2020 at 7:41 pm

        @Cas127 – I googled it. This was announced by the Governor of Connecticut.


      • Wisdom Seeker
        Mar 19, 2020 at 7:42 pm

        Cas127 – it’s true, you can google it. CT governor announcement.

        P.S. wouldn’t be surprised to learn there was a hidden cluster sprouting up behind / alongside the 2 fatalities. It’s amazing what you can learn when you start testing…

        • Cas127
          Mar 19, 2020 at 8:10 pm

          Could be true…couple dozen died in one nursing home in WA.

          “Cases” too may spike as ramped up testing reveals many pre-existing infected persons with enough symptoms/fear to go get tested.

          And that spike may inspire a major panic.

          But there are big differences between “cases”, “hospitalizations”, “severe cases”. and “deaths” – at each increase in severity, the ratio gets smaller.

          But those distinctions have tended to be ignored so far, and a spike in “cases” (which already existed, frequently so mild as to be undetected) will likely ignite another round of counter-productive panic (disrupted food supplies, etc.)

        • Cas127
          Mar 19, 2020 at 8:19 pm


          Here is the state by state tracker that I have been using (can’t vouch for it, but numbers seem reasonable)


          They also provide a day by day rolling ntl count, which is very useful for trends in ratio calculations.

          PS – One of CT’s deaths today was 91…such deaths did not use to generate press releases.

        • Gandalf
          Mar 19, 2020 at 8:20 pm

          Old people die all the time of pneumonia. And other things

          West Virginia, which had NO cases (something You Know Who in the WH bragged about in his now daily press conferences) until last week probably has had or will have a huge unknown number of deaths from COVID-19. They had zero cases because, being West Virginia, they had zero ability to test until recently.

          As I mentioned in 2003, a summer HEAT WAVE in Europe killed an estimated 70,000 people, mostly the elderly, with France being hardest hit.

          There was barely a blip in the US news media about this. You had to be a real news junkie in the US to know this was going on.

          I remember France was especially hard hit because those French people just have to all go on vacation in August, including doctors and nurses.

          Good luck getting sick in France in August

        • WES
          Mar 19, 2020 at 8:50 pm


          The other problem in West Virginia is it is so hilly! It would be pretty hard for the coronvirus to climb all those hills especially while being chased by them hound dogs! Once treed well … 2nd amendment and all!

          Then too, St. Peter’s at the Pearly Gates of heaven, has to lock the gates before weekends and holidays, or all those West Virginians would all leave and go back home!

        • Iamafan
          Mar 19, 2020 at 9:13 pm

          Darien rejected coronavirus drive-by test center. Rich residents complained.

          Those who have no idea where this place is, google Fairfield county Connecticut. We are right beside Westchester NY.
          In this area, both Trump and Clinton have houses. So have their friends.

          Who knows who died?

      • Lisa_Hooker
        Mar 20, 2020 at 3:39 am


  3. MCH
    Mar 19, 2020 at 6:40 pm

    If a virus of unknown quantity can do this, imaging what a real pathogen like the spanish flu could do.

    I wonder if this is just another problem with the current rating agencies… because they caused the mess in the CDO markets a decade+ ago, now it’s corporate bonds. Is that perhaps a common denominator?

    • Wisdom Seeker
      Mar 19, 2020 at 7:27 pm

      You do realize that the “Spanish Flu” was every bit as unknown at the time it came out, right? That it behaved like no other known flu at the time (or since)?

      But I agree with you, the ratings agencies are once again facing blood on their hands, because they failed to police the bond markets and gave investment-grade ratings to issues that are absolutely worthless right now. “Out, out, damn spot…”

      • Stephen
        Mar 19, 2020 at 9:08 pm

        Wowl, imagine that! The rating agencies giving phony ratings. Shall we make the ‘Big Short II?’ I will call Christian Bale and see if he is interested, but I doubt if we will find a Michael Burry in this mess to base a character off of.

        • JTM
          Mar 20, 2020 at 11:08 am

          Maybe Wolf?

      • MCH
        Mar 19, 2020 at 9:46 pm

        Yes, I do realize it… But that’s the beauty of this virus, it is an unknown quantity. It could be harmless, or it could be Ebola 2.0. Even now, getting a good quantification is difficult. Just imagine, this little bug has been around for a long time (odds are that there has been an outbreak of this virus in human history, but perhaps never recorded), and now it’s popped up. One wonders what else is just under the surface.

        The biggest killer is that this is an unknown quantity… kind of like AIDS when it started out. Give it a few years, and this will die down too. You’ll note, no one panics about most hemorrhagic fevers now. Although I’m sure there is a variant of it out there in the wild that is especially deadly and more contagious than the common cold.

      • Shiloh1
        Mar 19, 2020 at 11:12 pm

        Didn’t everybody watch The Big Short movie where the Steve Carrell character meets with the lady from A.M. Best and she laughs in his face when he asks how they monitor AND GET PAID FOR MONITORING THE COMPANIES THEY RATE?

    • Cas127
      Mar 19, 2020 at 7:34 pm

      The common denominator is DC printing trillions in QE, to gut interest rates that corps pay, in order to create politically profitable illusion of normalcy.

      So the corps levered up well beyond what their still marginally recovered post 2008 business could support.

      It isn’t a mystery, just an enormous scam that has expropriated savers for two decades in order to create an unsustainable series of false recoveries thru ZIRP.

      Ever since 2004, the US has been fundamentally inferior to China in terms of productive capacity and the Fed papered over the problem in the service of politics.

      • brent
        Mar 20, 2020 at 10:48 am

        yes, excellent commentary

    • Thomas Roberts
      Mar 19, 2020 at 8:11 pm


      The current coronavirus is believed to be more deadly and contagious than the Spanish flu. It’s difficult to know for sure, just like today, alot of countries tried to cover it up. Today’s world is far more developed and in a far better position to fight it. As long as infection rate doesn’t skyrocket and pharmaceuticals stay in stock the death rate will likely begin to fall, and once a vaccine is developed, the coronavirus may die out. In the end, the coronavirus depending on alot may only kill hundreds of thousands, but if unlucky “vaccines fail “unlikely”” may end up killing more than the Spanish flu. Overall, because today’s world is better developed the coronavirus will almost definitely kill a smaller percentage of the worlds population.

      Compared to 1920 the world today is far better developed, more connected, more densely populated “and more urban”, older, and less malnourished.

      It’s important to note malnourishment greatly weakens your immune system, but possibly for this virus, causes you to be less affected “hard to say”, because of how the virus links to your body.

      • timbers
        Mar 19, 2020 at 9:11 pm

        No no no no no. The mortality rate of Spanish flu was very much higher from what I’ve read.

        • Thomas Roberts
          Mar 19, 2020 at 10:38 pm

          The Spanish flu itself is less dangerous than the Wuhan Coronavirus, but because the Spanish flu hit the world during World War I, it was VASTLY MORE devastating than it would have been otherwise. The Spanish flu was likely not much more dangerous than a usual flu strain and was very similar to the H1N1 flu “swine flu” strain that happened in 2009 “this was part of the reason for the panic about the 2009 H1N1”. During WWI across much of the world, people were malnourished and thus had weakened immune systems. There were many other contributing factors as well.

          The total death toll from the Spanish flu is HIGHLY contested, but probably about 20 million or less.

          The Wuhan Coronavirus is itself a much more dangerous virus. But, the world is in a better shape and a better situation to fight it. Still no-one knows how many people it will kill, especially in less developed regions like Africa and India. It’s a big mystery until it happens. The overall death toll, will vary dramatically on how soon they figure out a better treatment for those gravely affected from the Coronavirus and how soon a vaccine is developed.

      • Jerry
        Mar 19, 2020 at 11:00 pm

        And it is far more interconnected and complex than 1920. The supply chain relies on many parts to function and if one breaks the whole thing goes down. The financial system is similar.

        What appears robust is actually very fragile.

        This is far more dangerous than the Spanish Flu, in every respect

      • Rcohn
        Mar 20, 2020 at 12:28 am

        The Spanish flu of 1918 struck mainly younger people 20-40.
        One of the reasons for its high mortality rate was the lack of antibiotics to treat pneumonia .
        CDC stats for the seasonal flu
        Cases. 36-51m
        Medical visits.17-24m
        Hospitalizations .376-670 thousand
        Deaths. 22-55 thousand
        Mortality rate <1%

    • polecat
      Mar 19, 2020 at 8:16 pm

      OUTSOURSING nearly EVERYTHING doesn’t exactly help matters now, does it !

      • MCH
        Mar 19, 2020 at 9:47 pm

        it would if it was distributed outsourcing. Not shifting all the production of the world and concentrating most of it in one location. If I were an alien invader looking to cripple the world economically, I’d start out by pasting China.

        • Thomas Roberts
          Mar 19, 2020 at 10:45 pm

          I’m especially Pi**ed that China had an industrial policy to dump goods that put other countries out of business in many key areas, then when a disaster hits “Wuhan Coronavirus, that’s entirely their fault” they hoard world’s supplies, then they “graciously donate” a trivial amount of goods to each country, and spin themselves off as heroes. Many politicians and news media are falling for it too.

    • char
      Mar 20, 2020 at 10:18 am

      Spanish flu was worse because back than they did not have antibiotics or oxygen (at least on the scale a modern hospital has) and other machines. I don’t think that the death rate would be worse than covid under current medical conditions.

  4. noname
    Mar 19, 2020 at 6:54 pm

    Since you mentioned “bailout” in the heading, I ask, does anyone know how this new “individual/family relief” will be distributed? I do not have an income, living on savings. Am I screwed yet again???? While all of my neighbors will be getting $3000+/month? I squirreled away modestly while they all have (2) 10mpg SUVdozers in the drive of their new home$$$, boats in the garage, fancy vacations, private schools, etc. Please don’t tell me I lose again…

    • Wisdom Seeker
      Mar 19, 2020 at 7:27 pm

      If Congress hasn’t passed it yet, no one knows how it will be distributed. It has to go through The Political Treatment first!

      • noname
        Mar 19, 2020 at 7:53 pm

        Thanks for the reply, Wisdom Seeker. That makes a bit more sense—I’ve been trying to find info on it since they’ve been talking about it. Sec Treas said he wants it for ALL Americans…then R’s and FoxNews added their spin—“TAXPAYERS”. Well, damn, I’d consider myself a taxpayer?! And a citizen!

    • WES
      Mar 19, 2020 at 7:27 pm

      Noname:. You will be severely punished by Central bankers for delaying your gratification instead of choosing instant gratification to boost GDP!

      Since I made the same wrong choice, can you please pass me a bailing bucket so I can help you bail our sinking boat!

      • Cas127
        Mar 19, 2020 at 7:42 pm

        The only thing that will force DC to act in the long term interests of the country, will be the start of an exit from the dollar…they won’t give a flying fuck about anything else…because their mono
        nopoly over the fiat dollar is their means of control over everything else

        • Wisdom Seeker
          Mar 19, 2020 at 9:38 pm

          And yet, right now the dollar is the one thing that everyone on the planet can’t have enough of.

        • SwissBrit
          Mar 20, 2020 at 3:20 am

          Wisdom Seeker – I don’t know about that; alcohol hand gel and toilet paper are fairly high up there on people’s wishlists too…

        • Gordian knot
          Mar 20, 2020 at 10:51 am


      • polecat
        Mar 19, 2020 at 8:26 pm

        My bailing bucket is a spitoon, which I wish to have emptied onto everyone in authority who dropped the prevention ball 6 weels ago !!!
        Counties and Cities are just the latest of the ball droppers …’sigh’

        … ‘cough, hack, sneeze”.. cough’

        • polecat
          Mar 19, 2020 at 8:27 pm

          6 ‘weeks’ ago


        • WES
          Mar 19, 2020 at 8:35 pm

          Polecat:. You date yourself!

          And since I know what a spitoon is, I date myself!

          My grandfather had a fancy one in the living room!

          Grandma didn’t like it much!

        • Calvin Tompkins
          Mar 19, 2020 at 10:30 pm

          ahh … go self quarantine polecat lol

    • Petunia
      Mar 20, 2020 at 4:53 am

      When they handed out money during the first GFC we didn’t get a dime even though we were broke. We too had spent the last year living off savings and whatever we could sell to survive. All the people with jobs, who didn’t need the money, got govt money. We got s**t.

      Expect to get s**t again.

      • Virginian
        Mar 20, 2020 at 7:00 am

        While the checks to individuals will be welcomed, it is really a payoff. The politicians realize Americans won’t stand for another corporate bailout if they don’t get money too.

      • noname
        Mar 20, 2020 at 12:29 pm

        Petunia, et al. —

        I found this link in another article:


        I’m sure it’s biased, like usual, but worth a read. It links to the bill.

        From the article:

        “Americans with little to no tax liability (aka, poor folks) will only receive a minimum payment of $600, unless they earned less than $2,500, in which case they get zilch. Low-wage workers who don’t have a federal tax return for 2018 or 2019—adults generally aren’t required to file one they if earn less than the standard deduction—also won’t qualify for the early rebate. (They could still get it next year if they file taxes for 2020, but by that time it will be a bit late.) Meanwhile, the payments phase down for workers who make more than $75,000 and drop to zero for those making $99,000 and above (double those numbers for joint filers).”

    • Shiloh1
      Mar 20, 2020 at 7:54 am

      I predict that the Iowa Dad who confronted Elizabeth Warren about how he sacrificed to have no student loan debt is about to get screwed on this one, too.

      I listened to Peter Schiff’s 4 hour podcast posted on “ZH” yesterday, including a long super chat Q & A. He mentioned the above anecdote in the context of all the bailout and money printing now and advised those like the dad to F – it, don’t pay your credit cards and perhaps your mortgage, otherwise you are a complete fool.

      Any news of the self-less government worker “public servant” types missing a paycheck? None that I hear.

  5. Mar 19, 2020 at 7:02 pm

    The Fed doesn’t print Federal Reserve Notes. The US Treasury prints them, issues them to the Federal Reserve System through the Federal Reserve Agent making the request.

    The US Treasury guarantees the Federal Reserve Notes, and then the Notes are used by the Federal Reserve System, among others, to buy debt issued by the Treasury.

    With such a monetary system, it’s not shocking we are in the situation we are in with credit/currency/money being showered upon us all. It will keep happening too, the only difference will be the nominal numbers being tossed about for bailouts, lending facilities, etc.

    Ref 12 USC 411

    • WES
      Mar 19, 2020 at 7:17 pm

      Aaron:. At some point in time, they will dispence with this formality!

      • Aaron Kerkman
        Mar 19, 2020 at 7:52 pm

        While I understand your point, the system is such because there is a powerful Constitutional issue that is sidestepped with this structure. The biggest is the issue of who is emitting bills of credit. They don’t say US note with zero interest attached, they say Fed Reserve Note with no coupon attached (whether the bill has interest or not is just one of the issues involving bills of credit and who may emit them, but it’s an important one).

        Would the SCOTUS hold that it’s acceptable for the US to emit bills of credit in times of unprecedented monetary turmoil?

        I guess I see your point. If that should come to pass, then the US has become “in your face” self funding – transparent for all to see vice the current system.

        • WES
          Mar 19, 2020 at 8:15 pm

          Aaron:. It only stopped in Zimbabwe when the central bank of Zimbabwe couldn’t pay the money printers for the cost of the ink and paper to print more money!

          Even after adapting foreign currencies for a short period of time, the central bank of Zimbabwe tried to get back into the business of printing money again using the power of the government to force their people to again accept the new printed money!

          So you see, it is dam hard to kill a central banker! Even when left for dead, they somehow manage to revive themselves!

          Mark Twain, was right, you got to bury them face down, so they don’t dig themselves out!

        • Petunia
          Mar 20, 2020 at 5:08 am

          The US issued its first bill of credit with the Louisiana purchase in 1803. Jefferson purchased the land on his signature as an agent of the US govt.

    • Cruiser
      Mar 19, 2020 at 8:22 pm

      The Fed buys Treasury paper on the open market then “pays” for it by crediting the receiving bank with new reserves. In other words the Fed conjures new money out of thin air via nothing more than accounting entries, no printing required.

      • polecat
        Mar 19, 2020 at 8:38 pm

        Hence the ‘reanimation’ …
        Tis all nightmare in my book !

        Question : Will The Piggies represented on WallStreet get eveything they want, thus maintaining the ability to hold the Conch ?

        “Who will join My trading-bot Tribe ?”

  6. nick kelly
    Mar 19, 2020 at 7:06 pm

    Re: the apparent coincidence of half the bonds being the lowest possible rating that is still investment grade. This has a parallel in education and testing, the so- called ‘gentleman’s C’.

    The grade of ‘C’ can mean more than one thing. On its face it means marginal but satisfactory performance. In reality it often means: should be an ‘F’ but for external reasons this truth can not be uttered.

    The companies pay the rating agencies and schools are paid either by govt or privately. In both cases there is often pressure to avoid issuing ‘F’.

    A normal distribution of grades or credit ratings over a significantly large sample should be a Gaussian or bell- shaped curve. A very abnormal number ( 50%) of ‘C’ s in education or BBB s in credit is proof that something is being cooked.

    • Socal Rhino
      Mar 19, 2020 at 8:22 pm

      Why assume gaussian distribution, why not poisson? The intuition that the books are cooked, based on track record of books alway being cooked, suffices.

      • WES
        Mar 19, 2020 at 9:15 pm

        Socal:. Speaking of cook books!

        In 1983, I got sent to Russia to work in a Siberian coal mine for 6 months. I brought along a small suitcase of paperback books figuring the authorities would confiscate them! One of the last books I put in was a red Betty Crocker cook book!

        As expected, they inspected everything!

        When they came to the suitcase of books things started to get rather dicey! They did not like this suitcase at all! Nyet! They called in a senior official who could speak English. She inspected all of the books and was frowning mightly!

        Then suddenly she picked up the Betty Crocker cook book because it didn’t fit in with the other books! It stood out like a sore thumb!

        Puzzled she asked me why the cook book? I said I expected to be in Siberia for 6 months and might want to do some cooking!

        She smiled, put the book back in the suitcase, and waved me through!

        When I reached Siberia, the other ex-pats there were surprised to find that I had been allowed to bring in a whole library of western books when they had at best one book each!

        • Tom Pfotzer
          Mar 20, 2020 at 7:06 pm

          How did you manage to get such a plum job??

  7. JM
    Mar 19, 2020 at 7:12 pm

    Boris Johnson said he will win the virus in three months, I think he is also optimistic. What will be the condition of the economy in three months?
    For air transport, many airlines will no longer reopen and therefore the prices of airline tickets will become prohibitive for the remaining airlines. Travelling will become more expensive therefore less world tourism therefore loss of a main engine of world growth.
    I’m always an optimistic guy but not any more now.

    • Stephen
      Mar 19, 2020 at 9:15 pm

      Or…perhaps ‘they’ don’t want us to travel anymore? Lots of agendas playing out here! Btw, announced a few hours ago – a lockdown in California. I am waiting to see how that works out!!

      • MarkinSF
        Mar 19, 2020 at 11:39 pm

        It’s working great up here in the SF Bay Area. Honestly I don’t know of any other responsible position to take. Maybe this thing is overblown. But if it isn’t, and you are responsible for the safety of your citizens and for directing the traffic necessary to manage a potential crises; i.e., minimizing the risk of an overwhelmed medical system, etc.

        • sierra7
          Mar 20, 2020 at 3:04 pm

          Just had a conversation with one of my children and husband; own (for more than 35yrs) business in S. Valley; they are now happier (?) now that Gov. has levied the “shelter in place” for all of CA. Before it was very confusing for part of the state to be under “quarantine” and most not.
          Already many, many businesses are making and have made severe modifications to their operations and are making plans for how they will move forward, paying office/warehouse rent; mods to how many employees are really necessary in normal operations; reduced sized of facilities; and much more.
          This whole global episode may leave a residual of a, “Great Reset” in how business is and will be done in the future.
          I feel strongly that for internet purposes the US may be finally forced to get 5G hi speed internet because of some of the major changes that will be made in how business is done.
          As for settling with the little folk here in the US….Banks/financial houses got the bulk of the bailouts in ’08-’09; if the virus hangs out for several months then we are all in deep, deep doodoo……we (the little folk) will need a 60-90 day minimum of debt relief….with no paybacks to the system. Otherwise what we see as a “homeless problem” now will be widespread…..and possibly soup-lines.
          The rich and their purchased politicians better think well this time around. Stay safe and healthy.

      • Dos Doobies Mas
        Mar 19, 2020 at 11:49 pm

        Not to worry, we’ll all be fine in LA!

        LA Times: “Cannabis dispensaries listed as essential businesses under L.A. County coronavirus order”

      • MD
        Mar 20, 2020 at 11:56 am

        Yes it must be the Knights Templar in league with the lizard men from Mars.

        Everything is a conspiracy Stephen – what are you going to do?!

    • VintageVNvet
      Mar 20, 2020 at 9:29 am

      May force optional travel back to the most efficient ”movers” : trains on land, sailing ships on sea, dirigibles in air, etc.
      Likely to be shanks mare for most of us though, eh?

  8. Mar 19, 2020 at 7:21 pm

    China and Russia popped our bubble,
    and I don’t think it can be patched;
    now, power shifts to Asia.

  9. Social Nationalist
    Mar 19, 2020 at 7:22 pm

    The Fed is irrelevant. Consolidation is here. This is not a prime banking crisis, but liquidation of a business model.

    • MarkinSF
      Mar 19, 2020 at 11:44 pm

      I hope and think you’re right but I’m afraid it may be awhile before they’re irrelevant. This group seems pretty responsive to Herr Trump (or they’re just blood brothers in the same pack hunting the same game) and there may be a big redistribution coming ( I think you know which way they’re going to try and make it go).

  10. Wisdom Seeker
    Mar 19, 2020 at 7:29 pm

    So, it’s contained, right? /snark

  11. ng
    Mar 19, 2020 at 7:35 pm

    Printing trillion after trillion after trillion, and now Trump can blame coronavirus, how convenient

  12. Wes
    Mar 19, 2020 at 7:40 pm

    Mr. Richter, we are getting a glimpse of actual price discovery in the bond market for the first time in a long, long, time. Jay Powell and the FOMC have been watching this for quite some time because they know very well that when the investment grade bonds drop just one level that certain entities such as insurance companies etc. will have to divest them. The Federal Reserve will most likely create a mechanism to keep them from flooding the market all at once, i.e. controlling the market price or downgrade. (Temporally keeping them off the market?)

    The old adage “ the markets take the stairway up and the elevator down, and they don’t ring a bell at the top”…

    • Social Nationalist
      Mar 19, 2020 at 7:44 pm

      No, they can’t. These bonds are subprime and non financial in generally. It’s a large reason 2 years ago I called it a nonbank crisis, which generally are not as bad as prime/bank crises.

      • Wes
        Mar 20, 2020 at 4:17 pm

        Social Nationalist, you need some remedial education on section 13 of the Federal Reserve Act.

    • WES
      Mar 19, 2020 at 7:58 pm


      Since BBB bonds are only $3.3 trillion in size, the Fed will probably just buy them all.

      After all, $3.3 trillion will soon just be a rounding error on the Fed’s balance sheet./s

      • GotCollateral
        Mar 19, 2020 at 8:03 pm

        Dont forget the derivatives on them that range from 10-100 leveraged against those $3.3 trillion, gotta pay out those too!

        • WES
          Mar 19, 2020 at 8:26 pm


          That’s easy peeeesy! After buying the bonds, the Fed will just cut the wires to the derivative’s trigger mechanisms!

          If you let the Fed’s experts remove the derivative’s detonators, what could possibly go wrong!

        • sierra7
          Mar 20, 2020 at 3:22 pm

          And, the “synthetic” derivatives!!!! LOL!
          I’m sure there are other derivative categories that I don’t know about!
          Read about these synthetics during the “aftermath” research on the GFC in ’08-’09.
          You can’t make this stuff up!

      • Dan Romig
        Mar 19, 2020 at 8:54 pm

        The Fed’s balance sheet just hit $4.7 trillion.

        • Cas127
          Mar 19, 2020 at 9:22 pm

          And the really sad thing is that it wasn’t like plenty of people didn’t warn about DC’s relentless march to financial ruin over *decades* but the old style MSM-DC incest just hung on too long and cable news diversity and the internet came just too late.

          Had the latter come just a little bit earlier, DC’s reality distortion bubble would have been popped or at least have been more effectively confronted.

  13. Mar 19, 2020 at 7:44 pm

    What’s so funny about peace, love and sinking funds? How many of you remember that risk mgt tool from your Corp Fin 101 days? How about serial bonds? I bet nobody under the age of 60. Back to basic credit and risk tools maybe?

    • Pete in Toronto
      Mar 20, 2020 at 4:32 am

      How about back when a *bond* had to be guaranteed by a specific physical asset, such as land, a building, machinery, or gold?

      All this debt secured only by the company as a whole, or guaranteed by the government, are *debentures*.

  14. gorbachev
    Mar 19, 2020 at 7:54 pm

    If it was just bonds no problemo. It’s the derivatives they are

    attached to. And the bigger problemo is few know who is

    responsible for the risk.

    • WES
      Mar 19, 2020 at 8:00 pm

      Gorb:. We are!

      • gorbachev
        Mar 19, 2020 at 8:08 pm

        Thanks WES. I wish you were wrong.

    • Beardawg
      Mar 19, 2020 at 10:37 pm

      Can someone explain derivatives as related to bonds?

      • Rcohn
        Mar 19, 2020 at 11:57 pm

        Derivatives are a category of financial instruments that comprise options , futures with currencies .Many of these derivatives are done away from any official trading exchange . Margins on these derivatives are often very low. The real risk of derivatives are what is known as “counterparty risk, meaning that the other side of the trade may not be financially able to fulfill its side if the agreement.

        • Wes
          Mar 20, 2020 at 12:18 am

          It definitely makes you wonder who’s holding the other side of the trade.

        • Shiloh1
          Mar 20, 2020 at 8:02 am

          Well 12 years ago the big domino was AIG, bag holder for counter party Goldman Sachs. The Aw Shucks Folksy Billionaire Next Store was tipped to AIG Bailout and invested in GS before the news was out.

        • cesqy
          Mar 20, 2020 at 11:55 am

          I bet most of these derivatives have force majeure or casus fortuitus clauses. “Do not a lender or borrower be” comes to mind, along with financial turbulence.

  15. Vernon
    Mar 19, 2020 at 7:56 pm

    The always astute and insightful Wolf. Great post!

  16. TownNorth
    Mar 19, 2020 at 8:10 pm

    The two bond funds I have went from positive returns to net loss since inception very quickly, last few days.

    Interesting article in ProPublica: “Senator Dumped Up to $1.7 Million of Stock After Reassuring Public About Coronavirus Preparedness.” It was the Intelligence Chair.

    • IdahoPotato
      Mar 19, 2020 at 8:58 pm

      Not just Richard Burr. Sen. Kelly Loeffler (R-GA) too. (He husband founded the Intercontinental Exchange) And I am sure a host of others, while writing opeds and telling people it’s either a no big deal, or a hoax.

      Check their Twitter timelines. They were selling millions of dollars in stocks while lying to the taxpayers who pay their salaries and give them the best healthcare.

      • WES
        Mar 19, 2020 at 9:39 pm


        The worst part of all this is that dealing in insider information is perfectly legal for them!

        P.S. My brother confirmed John Bagley took him up in Bob Hoover’s “Olde Yeller” famous all yellow P51 Mustang.

        Bob Hoover’s had to give up flying his P51 Mustang because his legs were no longer strong enough to safely fly the P51 Mustang. Bob when younger had broken both legs in an airplane crash.

        Contrary to public information, Bob Hoover gave his Mustang to John.

        Bob Hoover called John and asked if he would buy him dinner!

        John knew Bob couldn’t fly the Mustang anymore, so he replied. “Bob, I can’t really afford to buy your Mustang”. Bob replied, “I didn’t ask you to buy the airplane, I asked you if you would buy me dinner”!

        John has kept Olde Yeller exactly as he got it.

      • GirlInOC
        Mar 19, 2020 at 9:40 pm

        I just came here to see what the chatter is on this here. I’m not necessarily surprised, I’m just so disgusted. These elected officials (public servants) pushed a “don’t worry” narrative of the virus, while dumping stock, and also warned their donors of the impending crisis. This is the definition of corruption
        There’s another twitter feed where someone posted the specific stock dumps (which I dont understand). It’s more than Burr & Loeffler. I dont know if I can post the Twitter thread? Y’all can probably understand the details more than I.

        • IdahoPotato
          Mar 19, 2020 at 10:18 pm

          The Stop Trading on Congressional Knowledge (STOCK) Act (Pub.L. 112–105, S. 2038, 126 Stat. 291, enacted April 4, 2012) is an Act of Congress designed to combat insider trading. It was signed into law by President Barack Obama on April 4, 2012. The bill prohibits the use of non-public information for private profit, including insider trading by members of Congress and other government employees. It confirms changes to the Commodity Exchange Act, specifies reporting intervals for financial transactions.

          Richard Burr voted against it.

          They will now argue that it was public information that the market would go down, while they were publicly saying all was peachy.

          Now there are rumours that Sen. Ron Johnson sold shares in his family firm on March 2.

          On Feb. 28, Eric Trump tweeted:

          “In my opinion, it’s a great time to buy stocks or into your 401K. I would be all in… let’s see if I’m right…”

          Does he even know what a 401(k) is?

        • Mar 20, 2020 at 12:28 am

          The Stop Trading on Congressional Knowledge Act was mostly undone a year later:

        • IdahoPotato
          Mar 19, 2020 at 10:25 pm

          @Girlin OC

          Not only did Kelly Loeffler sell her shares while Tweeting about fear-mongering by Dems, she BOUGHT stock in Citrix (a work-at-home platform).

        • Mar 20, 2020 at 12:20 am


          Insider trading is not illegal for lawmakers (and staff, I believe). This stuff is SOP. These stories always appear in the middle or after crashes.

        • HowNow
          Mar 20, 2020 at 5:14 am

          Well, here in the South, it doesn’t matter what these GOPers do. The good ol’ boys just “want a beer and watch something naked”. Nothing’s going to change. And Burr waves the flag in everyone’s face here in NC just in case they fer-git.

        • Shiloh1
          Mar 20, 2020 at 8:04 am

          How do you think Nancy is worth over $100,000,000 ?

        • IdahoPotato
          Mar 20, 2020 at 10:00 am


          I may be entirely wrong here, but after reading that amended legislation I came to the conclusion that the change was largely to the disclosure rules and how those records are kept. They basically made it a very daunting task to check on their disclosures, including their staff’s disclosures. However, insider trading remains illegal for members of Congress.

        • GirlInOC
          Mar 20, 2020 at 11:58 am

          Everything I’m reading supports your analysis. And Burr just came out with a statement (find on his twitter) denying trades off of inside information but because he realizes the optics are bad he requested an investigation. I assume if inside trading is legal, he wouldn’t have asked for an investigation?
          (Again, I defer to you all on the specifics of the stocks/finance side of this because I’m not in that world. I’m just one of those people that get mocked here…an arts/humanities gal)

        • MD
          Mar 20, 2020 at 12:07 pm

          They’ll say it’s not corruption unless it’s illegal.

          That’s why people like the Russians and the French had revolutions to make sure that the laws were written for all and applied equally to all.

          Learn that lesson or get the reaming you consequently will so thoroughly deserve…

        • Noelck
          Mar 21, 2020 at 12:23 am

          Hillary Clinton cattle futures.
          Nancy Pelosi Visa IPO and legislation.
          Kelly Loeffler, currently
          Spencer Bachus in 2008
          Most Congressmen/women leave wealthier people because of inside information and corruption and we keep voting for these people.

      • wkevinw
        Mar 20, 2020 at 10:57 am

        IdahoPotato- for better or worse, most of this activity is actually legal.

        The government would only be there to help the citizens, though.

        • MD
          Mar 20, 2020 at 12:09 pm

          So you just roll over and accept it because “it’s legal”.

          Spineless response if that’s the case – and the exact reason you end up with people such as this in positions of power…laughing at you…

  17. SocalJim
    Mar 19, 2020 at 8:40 pm

    This is a tough situation. The big bond funds on wall street frequently assume that when credit spread are widening, UST securities are NOT significantly trading off. But, this assumption is blowing up. Fixed income managers are not sleeping well tonight.

    • SocalJim
      Mar 19, 2020 at 8:43 pm

      Some even go farther by assuming when credit spreads are widening, USTs are likely rallying. Those managers won’t be sleeping for the rest of the month.

  18. Gandalf
    Mar 19, 2020 at 9:05 pm

    Ugh, working the evening shift.

    Two cases in a row of Chest x-rays of previously healthy women in their 40s, with the classic patchy rounded ground glass lung infiltrate pattern. Almost never see this usually. COVID-19 exploding exponentially around me.

    My niece is in the ER. Hope she stays safe

    • Cas127
      Mar 19, 2020 at 9:41 pm


      There are going to be thousands more cases…did you provide a post for every death you attended last year?

      If you don’t stick to aggregate stats and trends, all you are doing is inspiring context-less panic and counter-productive despair.

      List sites where people can educate themselves…send them to CDC, Pubmed, etc. They will learn more and learn how to be less afraid.

      *This* won’t help…somebody died, another one did, add one, and another, ventilator broke down, etc.

      In any given year in US, you could do 2.7 million blog posts about individual deaths, but you don’t – why? Because it isn’t productive of an improved understanding, a treatment, a better outcome.

      • Wisdom Seeker
        Mar 19, 2020 at 9:46 pm

        Hey Cas, I agree in general, but eyewitness inputs are informative in their own way, and consider that the man-on-the-spot needs moral support too.

        Regarding aggregated stats and trends, I have an updated post in to Wolf. Might need to re-update with today’s data though… This thing moves fast.

        • Cas127
          Mar 20, 2020 at 10:16 am

          A long, seemingly endless list of specific deaths, published daily, for an indefinite amount of time will benefit almost no one – it isn’t done for the myriad of other diseases, why do it here?

          Every flu season, the MSM does not post an ever present “Death Clock” next to the truly ever present “Breaking News” tag, does it?

          As for therapy, perhaps for a day or two, but I think a healthier outlet would be to list what is known about the disease, its progression, stages of possible defense, alternate therapies, etc. There are nearly 12,000 articles on ARDS alone in Pubmed – there is plenty to collaboratively discuss among the universe of now-home bound workers.

          There is a ton of existing health knowledge to be reviewed, synthesized, questioned, and speculated upon – by a hugely inflated audience of educated people around the world…the very essence of a crowd sourced project.

          Ditto for the C19 supply and logistical challenges that may arise.

          Or we can passively marinate in a daily death watch, in a way we have never done for the 2.7 million Americans that die every single year.

          Eyewitness anecdotes are fine, in occasional doses.

          But has been said elsewhere, anecdotes are not empirical evidence and empirical evidence is what we could really use here.

        • Zantetsu
          Mar 20, 2020 at 10:56 am

          Cas127, don’t you get tired of typing endless tirades of your counter points?

          WE GET IT. You don’t believe that the Coronavirus is deadly or contagious. Enough already.

        • Cas127
          Mar 20, 2020 at 6:41 pm


          From you, again, a misrepresentation of what I actually said.

      • MarkinSF
        Mar 19, 2020 at 11:53 pm

        And yet it does help. Sorry.

        • Cas127
          Mar 20, 2020 at 10:18 am


          Especially if it develops into a daily drumbeat.

    • Wisdom Seeker
      Mar 19, 2020 at 9:44 pm

      Gandalf, thanks for the update! We all thank you for the services you will be performing to save as many in your community as you and your team can.

      I also have relatives in ERs, and feel the worry.

      Please keep us updated.

      And remember that whatever is about to happen, won’t go on forever.

      • Gandalf
        Mar 20, 2020 at 1:05 am

        Thanks. I’ve known this moment was coming since January, but it’s still shocking to see it hit on your very doorstep when it finally arrives.

        It’s here.

      • HowNow
        Mar 20, 2020 at 5:25 am

        And Cas127 wants to pound-down anything that challenges his thesis. “Facts, maam, just the facts”. It’s as though a directional trend has no place in his thinking… unless it conforms to his beliefs.

        • Cas127
          Mar 20, 2020 at 10:27 am


          There are all sorts of directional trends, sets and subsets of them – some good, some bad – the analysis of which is productive.

          But analysis is the exact opposite of “oh, well-ism”.

          And, given the evidence you provide in your posts, I don’t think you have the faintest clue as to what I actually believe on any topic.

      • HowNow
        Mar 20, 2020 at 7:40 am

        I should apologize to Cas127. He’s obviously very bright and typically a caustic but helpful contributor. My earlier complaint is that he offers no remedies to the “govt” that he so roundly condemns.
        Oligarchs and power-brokers have controlled “govt” since the late 1800s, so that’s not new. It isn’t “Elitists and Globalists” unless you want to ignore history. Consider the massive land hand-outs that were given to the early railroad magnates. And the protection of food cos. and slaughterhouses. And foreclosed housing handouts to insiders during the Great Depression.
        My remedy: campaign finance reform. Both parties are corrupt. That’s why insider trading laws can’t take hold. It’s clearly criminal.

    • pdxmtbiker
      Mar 19, 2020 at 11:21 pm

      Thank you for working, Gandalf. Healthcare providers are our heroes here.

      Wishing your niece good luck, and plenty of protective supplies for you. Stay safe.

    • MD
      Mar 20, 2020 at 11:54 am

      I’d say it’s the illuminati in league with The Jews who put those chemtrails there.

      Good grief.

  19. Anti-virus
    Mar 19, 2020 at 9:38 pm

    I’m just wondering why the Fed is rushing in to make all these businesses ‘whole’ again, but they aren’t making US citizens whole? A $1200 check? How about a $20,000 check?

    The airlines, car companies, etc will be reimbursed to 100% for their losses. What about the rest of us?

    • Social Nationalist
      Mar 20, 2020 at 6:06 am

      The Fed is doing nothing. They have made nothing whole. Why even post this???

    • IdahoPotato
      Mar 20, 2020 at 8:55 am

      US drugmaker Rising Pharmaceuticals doubled the price of potential coronavirus treatment chloroquine in January, as the outbreak spread in China.

      So your potential $1200 check may cover one potential dose if they potentially decide not to raise the price any further.

      • Lisa_Hooker
        Mar 20, 2020 at 2:16 pm

        U.S. cost per dose < ~$10.00. Everywhere else in the world $0.05.

        • Cas127
          Mar 20, 2020 at 6:59 pm

          Good news is that it is long generic, no patent monopoly.

          Most pharma producers could semi-simply shift production to Chl if scale were needed.

          No IP fights, no patent extension BS games.

          Interesting bit of story – hopefully heroic debut of translational medicine discipline, the study of *existing* drugs/procedures for non-traditional, off label uses.

          Existing status means trials for adverse effects have already been done, significantly accelerating general approval. Also, frequently means generic status, meaning much cheaper (although I vaguely recall patent applications for new uses of near-patent expiration drugs…any drug patent experts around?).

          Translational medicine also seems to focus on so called “small molecule” drugs, apparently simpler to produce and more likely to come in pill form (ie, survive digestive processes) than cutting edge “biologics” which frequently have to be infused under supervision and appear to have a much, much more tortured manufacturing/IP process…leading to some of the ugliest patent fights.

    • Petunia
      Mar 20, 2020 at 12:04 pm

      They are using 2018 as the base year for income. If you didn’t make enough to file in 2018, you get NOTHING. That’s a lot of unemployed people or social security recipients who will not be eligible as well. As usual, trillions for the rich, zero for the poor.

      • Petunia
        Mar 20, 2020 at 12:08 pm

        BTW, I’ll bet they make the payments taxable as well.

  20. KPL
    Mar 19, 2020 at 10:40 pm

    “That’s what you get when a virus hits the totally over-ripe Everything Bubble ”

    Looks like you have got the caption for Beer Mug 2.0!
    The crisis on multiple fronts looks like a dam where when the Fed plugs one breach another one sprouts up! May be in such a case everything goes to heck in a straight line.

  21. DR DOOM
    Mar 19, 2020 at 11:17 pm

    I really appreciate Wolf’s passion for what he does. I keep thinking of the movie “As Good As It Gets”. Jack Nicholson’s characters frustration erupted in a great line . ” I am drowning and you’re describing the water”.

    • Cas127
      Mar 20, 2020 at 10:48 am

      Ironically, this is a problem with a certain fraction of medical research, which is pitched at such an abstracted/infinitesimally focused level of biology and chemistry, that it is very, very difficult to see how it could lead to any useful patient therapies within (several) lifetimes.

      The dynamic is obviously to logically proceed from causes to effects, but it is possible to start so far back, that you lose sight of the goal, let alone reach it.

      The same dynamic applies in the continuum from descriptive economics to prescriptive politics – after a certain point, enough argumentative evidence has been accumulated so that as much political consensus has been achieved as is practically possible. Then it is time to proceed to action.

      The problem is that our government keeps taking actions that are in its own interests rather than in the long term interests of the rest of the nation – creating a boom-bust cycle of deteriorating resources for the last several decades.

      But DC’s answer is always “more cowbell” – because it makes cowbells.

  22. Rcohn
    Mar 19, 2020 at 11:33 pm

    The last few weeks have seen historic moves in bonds
    On Mar 6,the 10 year yield was 74 basis points with an inflation breakeven level of 1.31%
    Today the 10 year yield was 1.12% with an inflation breakeven of 50 basis points. This implied inflation rate of 1/2% annually is patently absurd based upon any 10 period past WW2.
    The Treasury protected 10 year bond is a much better buy than the 10 year.
    On Mar6,the HYG etf was trading at 85. For about a year before it traded in the high 80s . Today it closed at 71.
    On Mar6,the JNK etf was trading at 105.64.For about a year it traded around 88. Today it closed at 88.
    Both of these funds contain lower rates bond issues with oil companies representing around 20%.If the price of oil stays at 25, all but the highest rated , integrated oil companies are history.
    Wolf has written about the mismatch in liquidity between the prices of bond ETFs and their underlying portfolio of bonds . This presents a great deal of opportunity for agile traders to buy bond ETFs when owners of bonds panic.From my small sample this panic has spread to preferred stocks

  23. Rcohn
    Mar 19, 2020 at 11:43 pm

    The medical situation SO FAR has been much less than a seasonal flu outbreak, but the responses various governments have been exponentially greater. Whether the predictions of a much larger outbreak are true only time will tell .. But the huge government stimulus that will inevitably happen will be with us forever. And the ramifications of this huge government stimulus along with more government intrusion are the real problems that will result from COVID-19

    • RD Blakeslee
      Mar 20, 2020 at 10:23 am

      One possible defensive tactic for us peons: Take the $2400 (if you get it) and buy insurance. Junk silver.

    • Cas127
      Mar 20, 2020 at 7:55 pm


      The danger lies in the potential exponential/compound growth in the infected, where if the denominator becomes large enough, even a small severe case/fatality rate would overwhelm the ICU bed/ventilator supply quickly.

      It looks like in the past week, we have gone from about 2k positives out of about 16k tests, to 17k positives out of 135k tests. The fatality numbers are still low, but there is a lag of a few weeks between positive testing and severity/fatality.

      The problem is that that only took a week – no one would want 8 fold increases in positives, week in week out, week after week – the numbers get huge fast. It would only take about three wks from now to reach almost 10 million infected if the weekly 8 fold increases hold (with maybe 250k incremental deaths – almost half of all WW 2 deaths – above baseline…which is about 2.7 million per yr.).

      (Hopeful views – you would expect greater avl of tests to generate higher pct growth of positives initially as backlog of untested profile-matchers gets tested…so maybe it isn’t an eight-fold increase week after week.

      Also, despite projected exponential increase in infecteds, every individual transmission in those additional millions requires multiple factors to propagate. In the same way it is easier to grow a business from $1k in revenue to $10k (1000 pct increase!) than it is to grow it to it to $100k (same 1000 pct increase), the virus likely runs into difficulty propagating as the absolute numbers increase greatly (despite same assumed pct growth).

      From 1 to 2 is not the same as from 50 million to 100 million, despite the fact they are both doublings. The latter encompasses 50 million more individual sets of circumstances for the virus to confront.

      That is the hopeful perspective and perhaps what keeps these events from being a regular feature of human existence.

  24. Rcohn
    Mar 19, 2020 at 11:46 pm

    Should be for a year it traded around 108 not 88

  25. Iapetus
    Mar 19, 2020 at 11:57 pm

    According to the Bank for International Settlements:


    “investment grade corporate bond mutual funds have steadily increased the share of BBB bonds in their portfolios. In 2018, this share stood at about 45% in both the United States and Europe”


    “If, on the heels of economic weakness, enough issuers were abruptly downgraded from BBB to junk status, mutual funds and, more broadly, other market participants with investment grade mandates could be forced to offload large amounts of bonds quickly.The odds of such fire sales depend on the likelihood that a sufficiently large number of companies are downgraded from BBB to junk status in short order.”

  26. Kasadour
    Mar 20, 2020 at 2:18 am

    How is newly, downgraded to “non-investment grade” debt, unloaded into an already existing $1.3 trillion market? Easy. It substantially re-prices.

  27. Michael Engel
    Mar 20, 2020 at 3:07 am

    1) NYSE ($NYA) made a round trip from Mar 2003 (L) @ 4,419
    to Oct 2007 peak and down to a higher low @ 4,182 on Mar 2009. Hump #1.
    2) Mar 2020(L) @ 8953 is a round trip to Jan 2016(L) @ 8937. Hump #2. So far, another higher low.
    3) From the bottom of Mar 2009 @ 4,182, up 10,001 to
    Jan 2020 @ 14,188, and down again 5,230 to Mar 2020(L) @ 8,953,
    or : 5230 : 10,001 = 52.2%.
    4) There its over, but nobody know.

  28. KPL
    Mar 20, 2020 at 5:29 am

    “So the Fed has rolled out all kinds of bailout programs for companies, the corporate bond market, the corporate paper market, banks, money markets, the US Treasury market, the MBS market, and the like, trillions of dollars.”

    So how does this bailout work? Suppose company x has to roll over its debt, it just approaches the Fed and rolls it over at the existing rate of interest? Meaning to say, yields are set by the Fed and not by the market? meaning to say nothing called bankruptcy exists anymore? If you cannot raise money in the market, go the Fed and walk out with the moolah you want? What is the criteria to make it to this elite list? Large debt (imprudently squandered away through buybacks, dividends, pocketing as much as possible) and a loaded gun pointing at jobs or economy or financial system?

    I am all at sea here.

    • sierra7
      Mar 20, 2020 at 3:34 pm

      Sir, you are truly “awash” in good knowledge of how the system is working!

  29. Ole C G Olesen
    Mar 20, 2020 at 5:31 am

    GREAT ARTICLE … which shows the REAL Situation.
    The situation which ” Globalist Elites ” frantically try to hide by shufling Helicopter money in various directions HIDING the true purpose of the Monetary Actions : THE BAIL OUT OF CORRUPTED GREEDY OLIGARCHS ON THE BACK OF THE ORDINARY TAXPAYER… The whole current operations are a REPEAT of the SWINDLE of 2007 -2008. Because in the End the Standard Tax payers will have to FOOT THE BILL … It is OBVIOUS …by now !
    Thanks for the Article and the Link to the Morning star Bond Page ..

  30. historicus
    Mar 20, 2020 at 7:20 am

    Still, there are talking heads on cable financial stations calling for………..
    Let the markets work this out.
    Lending money at all time lows is historically not a good move….
    dont expect help from the Fed.
    Sadly, you might get it.

  31. wkevinw
    Mar 20, 2020 at 8:45 am

    Junk Bonds gave a solid sell signal at end of month in February, 2020, after being bullish for ~ 12 months.

    Action needed to be taken then. Some did take action.

    The most likely scenario is a bounce. Then one has to reevaluate. Most likely another “opportunity”/signal to sell will flash.

    Luck to all.

  32. Trailer Trash
    Mar 20, 2020 at 8:56 am

    The Fed is pouring trillions of currency units into a rapidly collapsing supply of goods and services. I know it sounds melodramatic, which is not all helpful, but isn’t this the very definition of a hyper-inflationary event?

    What am I missing?

  33. LouisDeLaSmart
    Mar 20, 2020 at 9:08 am

    I never post links, but this one is as relevant as ever! It made me laugh! And God bless Octavia!
    U.S. Government Stages Fake Coup To Wipe Out National Debt

  34. Mar 20, 2020 at 9:08 am

    Making the case one more time for Corporates vs Treasuries. Who’s got your back? Fed chief sends trillions to Wall St, some fraction of that to Main St, and you will spend your money at Amazon. TSLA is a bad example, NetFlix better, the case for locking down and watching TV. The second case is chasing yield. Those spreads are manna because lower interest rates imply a higher bond rating. I am concerned about revenues, the spread between USG revenue and Corporate is widening as well. There are conspiracy theories about Dems weaponizing the virus to win the election, but what if 45 is using this to drain the swamp? blah blah, the Corporate takeover of America, blah blah.

    • Unamused
      Mar 20, 2020 at 9:46 am

      blah blah, the Corporate takeover of America, blah blah

      They will continue to rob the country until there is nothing left to steal, and they will scapegoat the very people who are trying to stop them. With a wealth transfer on this scale they won’t need another.

      There are conspiracy theories about Dems weaponizing the virus to win the election

      Yeah, right, elections.

      • george carlin
        Mar 20, 2020 at 10:24 am

        “If elections meant anything they would have made them illegal, long ago” – george carlin

  35. Anmol
    Mar 20, 2020 at 9:40 am

    Wolf, how about an article on the QE5 done so far? We are long past the interventions in the repo markets. The Fed has shot a bazooka on a daily basis, the latest seems to be an attempt to reign in the dollar shortage in the eurodollar markets.

    • Mar 20, 2020 at 12:01 pm

      Coming in a couple of hours.

      • Gandalf
        Mar 20, 2020 at 12:24 pm

        Still trying to learn about the dollar shortage. I get why the world is rushing to draw down US dollars in cash, trying to get ahead of possible credit line freezes.

        Why would that cause the yields on 10-year Treasuries to go up?

        I don’t see that connection. I had proposed another possibility, but am not sure if something else is going on.

      • Anmol
        Mar 20, 2020 at 12:35 pm

        More fodder for the article, Wolf.. Are they indirectly going to buy back stocks ?

        >>“Collateral eligible for pledge under the PDCF includes all collateral eligible for pledge in open market operations (OMO); plus investment grade corporate debt securities, international agency securities, commercial paper, municipal securities, mortgage-backed securities, and asset-backed securities; plus equity securities.

        • Mar 20, 2020 at 12:41 pm

          That’s going to be in the second article on this topic. I don’t have all the answers, but I have some.

  36. DanS86
    Mar 20, 2020 at 9:48 am

    Since pensions are in BBB, they ain’t gonna downgrade. Inflate away!

    • Unamused
      Mar 20, 2020 at 9:58 am

      You’re blaming the victims. Typical corporatist tactic.

    • Shiloh1
      Mar 20, 2020 at 10:05 am

      That’s pretty much what Greenspam said about social security: he could guarantee the money would be there, but not what the money would be worth.

      • wkevinw
        Mar 20, 2020 at 10:55 am

        Shiloh1 on social security. It will “be there” “be saved”, pick your favorite euphemism.

        It has been “saved” several times by raising its price. It costs about 5x the original government estimates. So much for government estimates.

        Math is math, so either the money won’t be worth as much as one would hope, or the regulatory requirement of a 25% benefit cut will be triggered.

        It’s simpler than it may look.

        • cas127
          Mar 20, 2020 at 8:07 pm


          What trigger for 25 pct cut? Link/cite please.

  37. Iamafan
    Mar 20, 2020 at 10:04 am

    If you have been paying attention for months now, the Fed has been in a liquidity pumping mood. This went overtime since the corona virus.

    But understand what it really does. The Fed buy Treasuries and MBS from primary dealers giving them more reserves to buy more new Treasuries and MBS. In other words, this will improve the liquidity of Treasuries soon and the volatility of Treasuries will reduce. But some of this money will be used to buy OTHER securities, too; hoping for a market “rebound”.

    You cannot expect these dealer/banks to lend non-viable or insolvent companies. That’s for the Fed and Treasury to do using the alphabet soup of programs.

    In the meantime, the Fed will also increase its swap line with other central banks of foreign countries.

    We’ve seen this game play out in 2008-09. Hence after, we saw a couple of rounds of Quantitative Easing. It won’t be different this time. Just bigger. As usual the outcome is to improve the wealth of the 1%.

    • Mar 20, 2020 at 1:02 pm

      First reaction, there should not be any more ‘whatever it takes’. The 2009 playbook is gone. No more lifting all boats, esp the leaky ones. The effect is positive, where it consolidates corporate credit and concentrates (shrinking) investment capital further, which inflates asset values while that money seeks out suitable investments, the number of which are shrinking. That is all bullish. Corporate credit always gets what it needs, in this case the FED is trying to save industry by pushing more the circa 2009 malinvestment of capital, while driving a stake in the heart of the treasury bond/ dollar relationship. Corporations benefit from deleveraging, while the Fed readies for another round, to prop up dead wood. They will fail, using government funds, destroying that entity, while corporations will come through the other side. Even Tesla’s silly EV will survive. Department of Education, probably not.


  38. Michael Engel
    Mar 20, 2020 at 10:51 am

    1) At market bottom the strong hands accumulate shares from
    the weak hands.
    2) Trump is wall street strongest hand.
    3) He will accumulate 30% of important co shares and collect dividends.
    4) The president will become the largest shareholder.
    5) He will have a dominant seat in the board.
    6) In the next few years the Fed and Trump will the largest
    shareholders of US co.
    7) If NYA stop right here, within the next 5Y it will easily reach 17,000.
    8) US gov will be the biggest beneficiary of this upthrust.
    9) A combination of tariff on Europe + China + wall street will put a lot of
    money in Trump pocket.
    10) He will dictate wall street and US.
    11) Many employees will be accumulated under Trump umbrella

  39. Kasadour
    Mar 20, 2020 at 11:49 am

    POTUS just decried buybacks on live, national TV- introduced Pompeo as Sec. of “Deep State”.

    • Mar 20, 2020 at 12:19 pm


      He did? I listened to part of it but missed that. Can you confirm and kind of summarize what he said concerning buybacks?

      • wkevinw
        Mar 20, 2020 at 12:43 pm

        POTUS said he did not like the fact that companies used tax cuts to do buybacks. He said generally he didn’t like buybacks vs. investing in physical capital (e.g. mentioned “hangars”).

        If the companies who didn’t invest well are accountable via bankruptcy, this problem will correct itself.

        Bailouts=> continued textbook misallocation of capital.

        • Mar 20, 2020 at 4:46 pm

          wkevinw, Gandalf, and noname,

          Thanks. That’s very interesting. Maybe someone at the White House reads my stuff and tells POTUS about it. I know my no-bailouts-for-share-buyback-queens article got a lot of attention and is still being handed around and numerous other sites have picked up on this.

      • Lisa_Hooker
        Mar 20, 2020 at 2:31 pm

        POTUS said he never (post tense) liked buybacks. Said our current round of largess should not go to any buybacks. Said he didn’t like buybacks perhaps 10-12 times over ~3-5 minutes of the virus status report. Hopefully will be archived on YouTube somewhere.

      • Kasadour
        Mar 20, 2020 at 4:07 pm

        I can confirm it. I heard POTUS say it, but he was obviously [to me] speaking off script when he did. It was this morning’s presser. Then he introduced Mike Pompeo as the “Sec. of the “deep state”, as Pompeo, approaching the lectern, had a shocked look on his face.

      • noname
        Mar 20, 2020 at 4:38 pm

        He said it yesterday as well, Wolf. Sorry don’t remember his words, but probably somewhere online. Something to the effect of “I don’t like them, and I didn’t like them”. I think it was a reply to a question.

      • noname
        Mar 20, 2020 at 5:00 pm

        Wolf, I’ve read a lot of people commenting about buybacks in online articles very recently.

        I thought of this site when Sec of Treas said “Now is not the time to worry about it [the deficit]”. My heart skipped a beat. I might start drinking (wine) again—let me know if you put that on a wine glass..I will take a complimentary one for the suggestion :D :/

      • Cas127
        Mar 20, 2020 at 8:30 pm


        One problem – unlike the TBTF banks post 2008, the doomed Corps were not required to generate “living wills” theoretically expediting their passage through bankruptcy (BK).

        The corps have fairly tortured capital structures as well, sometimes with hundreds of debt issues, each owned by hundreds of institutional investors. Each with a claim on the assets, whose individual valuations are subject to individual dispute (at least per std, non-catastrophe BK practice)

        So it can definitely turn out to be an insanely long, epic clusterf*ck of a fight in BK…which tends to disrupt ongoing operations and long delay resolution via BK exit.

        Not trying to provide an out for the “elites” who placed the US on this precipice (the work of decades despite long, vocal opposition from cynics), just trying to highlight the out they will probably try and take (“Too complicated to fix right now during CRISIS, so override laws in name of coincidental existential need”).

        See 2009 auto company bailouts…

    • Gandalf
      Mar 20, 2020 at 12:39 pm

      He says one thing and does another. His $1 trillion corporate tax cut and extra annual Federal deficit was what funded the bulk of the recent corporate share buybacks. The original full Paul Ryan version of that tax cut was to pay for it by cutting back on Social Security and Medicare.

      • Unamused
        Mar 20, 2020 at 2:17 pm

        The original full Paul Ryan version of that tax cut was to pay for it by cutting back on Social Security and Medicare.

        They’re still intent on cutting another 700,000 off food stamps, plus a couple of dozen other initiatives aimed at damaging or eliminating social programs. At this point those initiatives, even were they to succeed, would do nothing to improve the nation’s financial situation, but the class war waged against Americans, red and blue alike, doesn’t stop for national emergencies.

    • Gandalf
      Mar 20, 2020 at 12:44 pm

      From CNBC:

      “President Donald Trump said on Thursday that he would not oppose barring companies that receive federal assistance during the coronavirus pandemic from conducting stock buybacks.

      “It takes many many people in this case to tango, but as far as I’m concerned conditions like that would be okay with me,” Trump said during a White House press conference when pressed on whether he would support a provision forbidding stock buybacks in a bailout bill.

      Trump said he was “never happy” with stock buybacks, but that it was difficult to prevent companies from doing them. “It’s very hard to tell them not to, but I would tell them not to, I would say I don’t like it,” he said.

      • Unamused
        Mar 20, 2020 at 5:22 pm

        It’s very hard to tell them not to, but I would tell them not to

        Naturally. He knows where the campaign contributions are coming from. The swamp runneth over.

  40. Mar 21, 2020 at 2:43 am


    Great work spreading clarity about all you see around you. It’s refreshing nowadays. Not to be pedantic, but your othewise flawless article has one flaw.

    Fifth paragraph, second line, “to,” should be “too.”

    You can delete this comment after digesting it, as it’s sole purposes are editorial in nature, rather than reflecting on the excellent content.

    • Mar 21, 2020 at 12:05 pm

      Thanks. Only “one flaw?” I’m so proud of myself :-]

  41. DanS86
    Mar 22, 2020 at 12:29 pm

    What a yield…I’m buying!

Comments are closed.