{"id":4417,"date":"2011-06-02T16:53:18","date_gmt":"2011-06-02T21:53:18","guid":{"rendered":"http:\/\/leavittbrothers.com\/blog\/?p=4417"},"modified":"2011-06-02T16:53:18","modified_gmt":"2011-06-02T21:53:18","slug":"is-the-junk-bond-market-trying-to-tell-us-something","status":"publish","type":"post","link":"https:\/\/blog.leavittbrothers.com\/?p=4417","title":{"rendered":"Is the Junk Bond Market Trying to Tell Us Something?"},"content":{"rendered":"

Here’s the high yield junk bond ETF, JNK charted vs. the S&P 500 over the last 10 months. The correlation is obvious.
\n<\/span>
\n\"\"
\nJunk Bonds:<\/strong> They are lower grade and therefore higher risk. The odds of default are higher than other bonds, so to attract investors, they have to pay a higher yield. <\/span>
\nWhy are they important?<\/strong> They signal 1) Wall St.’s appetite for risk and the 2) amount of money flowing around. <\/span>
\n1) When investors are willing to “gamble” with junk bonds instead of running to the safety of higher grade bonds offered by solid companies that are very unlikely to default, it’s a bullish sign for the market. This is similar to how the small caps tend to lead the market up and down. When money flows into and out of speculative issues, the market tends to follow. 2) When investment dollars are limited, money flows to safe, conservative vehicles. Introduce a little more money into the system, and that money will find its way into slightly less safe and less conservative issues. Introduce more money, and well, you get the point. Continue on with this sequence, and eventually there’s so much money flowing, it has no choice but to find a home in speculative issues. At the end of the day, the amount of money flowing, or liquidity, determines whether the market goes up or down. So when junk bonds are bought up, it means there’s lots of money flowing.<\/span>
\nWhy is yesterday’s big drop significant?<\/strong> First off, 25 cents of that drop was due to JNK paying its monthly dividend. But the rest of the drop was due to plain old selling presumably because investor’s appetite for risk has decreased. This, as explained above, is bearish.<\/span>
\nLet’s continue to watch JNK. If it lags, the market isn’t likely to make much headway to the upside.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

Here’s the high yield junk bond ETF, JNK charted vs. the S&P 500 over the last 10 months. The correlation is obvious.<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[3],"tags":[],"_links":{"self":[{"href":"https:\/\/blog.leavittbrothers.com\/index.php?rest_route=\/wp\/v2\/posts\/4417"}],"collection":[{"href":"https:\/\/blog.leavittbrothers.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blog.leavittbrothers.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blog.leavittbrothers.com\/index.php?rest_route=\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/blog.leavittbrothers.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=4417"}],"version-history":[{"count":0,"href":"https:\/\/blog.leavittbrothers.com\/index.php?rest_route=\/wp\/v2\/posts\/4417\/revisions"}],"wp:attachment":[{"href":"https:\/\/blog.leavittbrothers.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=4417"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blog.leavittbrothers.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=4417"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blog.leavittbrothers.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=4417"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}