The Risk-off trade that occurred after the wake of the Fed panic is getting unwound:
-Bonds rated CCC lower lost 2.4% since May 22 and June 19
(Bernanke's comments) since then debt has rebounded nicely by 3.5%
-Most risk assets “have probably retraced a good 75 percent on average of the widening that occurred in the late May and June period,”
However risk trades getting unwound is a worry, here's why:
The end of QE signaled a shift in how the Fed wanted to communicate about risk. As QE was meant to push down risk premiums, the end of QE is likely to push up risk premiums:
-Dont expect the Fed to push yields down anymore, they wont be pushing you to take risk
-For stocks they will rise if the economy lifts off - however dont expect P/Es to go up - the Fed will not push the P anymore, rather the E component will lower the ratio
-DBV Carry trade (e ETF that is short three currencies and long three currencies at all times) DBV tanked since May 22 and it has struggled with a key technical resistance level. Does this look like that risk is getting bought again?
-However, The EMB/HYG (emerging markets to high yield bonds etf) ratio fell through a key relative support level and has had trouble regaining relative strength. So risk on may not be coming back globally, market hasn't totally "healed"
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