High Yields have us concerned…A Tea Leaf?

High Yield bonds also known as junk bonds are showing stress. As a reminder high yield bonds are slightly lower in quality (higher risk) for various reasons, that pay a greater yield than that of their higher rated relatives.

In our Q 1 2013 Newsletter we spoke of the risks of High Yield bonds, along with the lack of Tea Leaves in this day of outside influences.

Recently High Yield bonds have caught our attention as they are GENERALLY very highly correlated with capital markets.

The divergence in the last several weeks has caught our eye! (Far Right of chart)

High Yield Versus SPY (Click for gigantic picture)

Apologies for the choppy picture, but this charting system produced the best overlay for showing the correlation

This may be nothing, and very well could correct in short order but it is currently giving fuel to our conservative/negative market view, as such we are watching very closely.

Have a Good Day!

JK