‘Are Junk Bonds Ready to Fall?” – USA Today
‘Junk Bonds Flash Warning Signal’ – MarketWatch
‘Junk Bond Decline: Should You be Afraid?’ – Barron’s
‘Junk Bond Risk Climbs in Europe as January Issues Reach Records’ – Bloomberg
‘High-Yield Selloff Just Beginning?”
When times are good, junk bonds are called high yield bonds. When times are bad, they’re called by their real name, junk bonds.
Based on the above headlines, high yield bonds have fallen out of favor. At least that’s the media consensus. What does technical analysis show?
The chart for the SPDR Barclays High Yield Bond ETF (JNK) doesn’t look impressive. JNK just closed below trend line support. The recent all-time high was also accompanied by a bearish RSI divergence.
Although the technical picture looks similar, the JNK breakdown is not confirmed by its ‘junkie cousin’ – the iShares iBOXX High Yield Bond ETF (HYG). HYG remains above trend line support.
Does HYG matter more than JNK or vice versa? Probably not. JNK trades more actively traded (4.3 M shares compared to HYG’s 3.5 M), but is smaller ($12.8 B vs HYG’s $16 B).
Anyone short JNK may use the red trend line as stop-loss guide. The prudent approach is to wait for HYG to confirm JNK’s breakdown.
JNK and HYG have both decoupled from the stock market. Bond traders are often considered smarter than stock traders and viewed as canaries in the mine. If that is true, stocks and bonds may be about to hit a rough patch.
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