JUN 15, 2017 ​CREDIT MARKETS (from The June 15th Pivotal Events)

JUN 15, 2017 ​CREDIT MARKETS (from the June 15th Pivotal Events) 
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As noted last week, the long bond (TLT) has been acting well and has further to go. The advance from 116 in March got above the 20-Week ema and is staying well above, which is constructive. Now up to the 126 level, the exponential moving average is at 123. Our TLT target has been the 135 level.
After last week’s pause, the Treasury curve has resumed flattening.

Junk has been likely to rally into this time window and it has. JNK corrected down to 35 in November and rallied to 37.41 at the end of May. Last week we wrote that the action was working on a Sequential Sell, which did complete. It declined with the hit to the stock markets.
 
Now at 37.25, taking out the ema at 36.66 would be significant.

Yesterday’s (June 14, 2017) hit to industrial commodities was substantial and a threat to credit spreads, which have widened. Technically, this shows well in the JNK/TLT. The best was 237 in March, which compares to the 236 reached in May 2016. The “Sequential” applies to spreads as well
and the action is rolling over. Last week, it slipped below the 20-Week ema and this week the spread has taken out the low of early April.

The trend is now down which means widening. Spread widening with weakening industrial commodities has been possible after midyear. Which would be the key step towards liquidity problems likely to be discovered after August.

Once again, it is worth recalling that when market forces have pushed credit abuse to the limits, the senior central bank has been unable to prevent the consequent contraction. The first senior central bank with powers of issue was chartered in London in 1694. Since the 1940s, the Fed has been the senior central bank. For over 300 years, central bankers have imposed and market forces have deposed. More Credit Market Observations here.