High Yield Bond (HYG) and Preferred Stock (PFF) ETFs Crater

The High Yield Bond ETF (HYG) and Preffered Stock ETF (PFF) have cratered over the last half hour, giving up any gains they've made over the last six months and more.  These are HUGE moves lower that came out of nowhere.

Comments

[theyenguy]

The fall of HYG reflected a violent exit from yen carry trades, including but not limited to the Aussie, the Loonie, the Peso, the Rand, the Ruble, and the Rupe, as investors bought the Yen, FXY, which rose a spectacular 3.8% to close at 109.77. The Euro, FXE, fell to 125.96. The US Dollar, $USD, rose to a 14 month high to close at 84.85. Currency traders sought safety, if it be called that, in the US Dollar.

This one day violent extinguishment of carry trades was a repudiation of investment risk. The Aussie Yen carry trade, FXA:FXY, fell to its 250 day moving averge. In one day, currency carry trade investment fell back seven months, to the early October level when gold broke out. This extinguishment of carry trades represents a "vaporization of investment liquidity" which places one's investment capital at risk: further declines in the stock market may trade in an illiquid manner, meaning that there may not be buyers for securities: one may not be able to obtain one's funds in brokerage accounts and at money market accounts. I recommend that one be invested in gold and take physical possession in the form of gold coins. Gold, GLD, rose 2.9% today.

The fall of PFF involves the move of yen carry trades and also reflects the capital flight from Ben Bernanke's 1.25 Trillion in Quantative Easing -- the preferred shares were deemed safe and deemed likely to rise with TARP and other Fed facilities.

Interest rates on Treasurys soared as investors sought the safety of U.S. government debt. The yield on the benchmark 10-year note, which moves oppoosite its price, fell to 3.37 percent from late Wednesday's 3.54 percent; IEF rose 1.1%, TLT 3.1 and ZROZ 5.8. Investors found safety, if it be called that, in the longer out US Government Bonds: I do not deem sovereing debt to be safe.

Those short the market profited; for example the Proshares Bear Market ETFs soared
1. EPV UltraShort MSCI Europe 10.10%
2. BZQ UltraShort MSCI Brazil 8.32%
3. EEV UltraShort MSCI Emerging Mkts 8.19%
4. SRS UltraShort Real Estate 7.78%
5. SJH UltraShort Russell2000 Value 6.91%
6. SCC UltraShort Consumer Services 6.55%
7. SMK UltraShort MSCI Mexico InvstMt 6.52%
8. SMN UltraShort Basic Materials 6.22%
9. SSG UltraShort Semiconductor 6.11%
10. SIJ UltraShort Industrials 5.85%

[Marrilyn]

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