Bespoke: High Yield Stalls

Ted

FYI: Just like the broader market this week, the rally in high yield credit stalled out a bit. Earlier on Friday, we highlighted the fact that the S&P 500 ran into resistance right at its 200-DMA earlier this week and has been pulling back ever since. In the case of the ETF that tracks the high yield credit market (HYG), we have seen a similar setup. Coming off the lows in December, high yield was a little bit late to the rally, but it quickly made up any lost ground and has since followed the move in the S&P 500 step for step. In fact, this week HYG even managed to briefly trade above its 200-DMA. In this case, though, HYG ran out of momentum pretty much right at the same spot (~$85) where recent bounce attempts also ran out of steam.

The fact that these rallies in both high yield and the broader equity market are stalling out right at key moving averages is no doubt a focus of technicians, but given the magnitude of the moves off the lows, they had to take a break at some point, so why not at a point where everyone was expecting it. The only test now is whether there are enough bids below current levels to support the market, or will sellers eventually overwhelm the balance.
Regards,
Ted
https://www.bespokepremium.com/think-big-blog/high-yield-stalls/

Junkster

I guess I sweat the little things in life too much. But analysts etc. who use HYG or JNK as a proxy for the junk bond market drives me nuts. These are not total return indexes and hence are useless in knowing what is really transpiring in the junk bond market. True, junk has stalled the last two trading days and has declined a bit. But Wednesday junk bonds hit all time historical highs. That is measured by the Bank of America Merrill Lynch High Master II Index. This total return index is the proxy for the junk bond market. If that is not enough to convince you, many junk bond funds had already been trading at all time highs on a total return basis the past week or so.

Edit: Speaking of sweating the little things in life....... One of my close hiking buddies, a 63 year old lady, is having hipec surgery Monday at Vanderbilt. A grueling 8 to 12 hour procedure that can often be fatal. Now that is something to sweat about! I have been praying, praying, and praying for her that she not only pulls through but that it can eradicate her cancer.

Old_Skeet

@Junkster: Thanks for commenting on the high yield market. And, also, please know I'll be keeping your hiking buddy in my thoughts (and prayers). I hope the energy of prayer of not only myself but the others on the board that are of the praying type will give her the strength for her to endure this upcoming surgery. Take care Junkster as you will also be in my prayers.

Old_Skeet