The Market's Junk Problem
Content adapted from this Zerohedge.com article : Source
Authored by Sven Henrich via NorthmanTrader.com,
This might not be of the magnitude of Michael Milken and the junk bond mess of the 1980s but the market has a junk problem.
$JNK is a high yield bond ETF that serves as a good technical indicator of late.
This ETF was on a solid uptrend only to stall out in January. It pulled back before the market which followed it lower. After bottoming, it tried to retake resistance and failed twice.
Note the 2 attempts to recapture the trend line these past 2 weeks. Both attempts failed precisely at the trend line and each time produced selling in markets including this week.
As long as $JNK stays above the 35.70 gap odds for a big rally are improving. Fall below the gap and markets may make new lows or retests lows.
But as long as $JNK remains below the broken trend line markets are having a junk problem.
Non-adapted content found at zerohedge.com: Source
Im definitely the worrying investor type and there appear to be less and less of us these days. Just like you mentioned ,look at the shrinking spread between the yields on junk bonds and comparable Treasurys. Stock market is nothing compared to bond market. Bond Morley decides what direction everything goes especially stock market. This spread is currently 3.5% or so. Which means that junk bond investors on average be paid a yield of just 3.5 percentage points more than if they had instead invested in Treasurys of the same. That’s not much compensation for the considerably higher risk investment.The junk bonds are called “junk” because they are much more riskier just as stocks are.The average high-yield spread over the last 20 years has been 5.7 percentage points. And it often spells economic trouble when the spread drops to levels where it stands today. The record low for the spread came in the summer of 2007, when it dropped to 2.4 percentage points before the famous crash.
For this reasion many peoples are surviving on .
They are also too much dept for long.
I think it is happening for Too much junk arises from too low interest.
What do you say???
$JNK and $PTY were my dividend plays but I started being a little more aggressive with my trading recently so I sold most of my holdings. I still have few shares of $JNK though. Monthly dividends are very nice and the yield is great. Thanks for the update @zer0hedge
$JNK i did not know about this before reading this article Thanks for sharing this I want to know more about this $jnk keep sharing I already follow you for your upcoming post Thanks
It definitely does not look great this scenario, it seems that the market wants to go down, and as you mentioned, if it crosses below 35.70 the drop will be very big and significant.
This last 2 months have not been easy for investors that are losing money "right left and center". Right now crypto is looking healthy when compared to this other markets, and I think this scenario is great for the next months evolution of the prices in crypto.
What does this tell us: Firstly, technicals have worked nicely on this chart. The trend line break is bearish and the failure to recapture the trend line is bearish. Doesn’t mean $JNK won’t try again, and it if does it’ll be bullish for markets, but without a recapture it’s not good news for markets and this trend line is moving away, so bull need a solid rally to emerge to race up there.
That's a Great post @zer0hedge
I hear experts claiming that junk bonds will drive the economy to new lows, when the bubble bursts. I hear that for 3 years now and so far nothing is happening. I am not saying that it will not but the JNK is doing exactly what SPY is doing at the moment, so no surprise there. I guess high yield hunting won't stop until someone goes under.
$JNK's portfolio has been the largest in the segment for some good years; as it has been very popular and very liquid. And I've always seen it as a better high yield ETF for investors given it's cheap price as well. These high yield ETFs always fetch more returns but they are always highly risky.. as you might not get your money back. Not like in investment grade bonds where it's always certain to get the money back though the returns are small. I think this junk problem has been caused by the high supply rates; as companies are trying to get these low rates while they last.
These high yield ETFs should not be over looked as they go through this hard time. They add liquidity into the market and I feel the feds can come in to drive investors out of cash in safe investments to riskier assets to help rekindle the economy.