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!
JK214-706-4300 www.jkfinancialinc.com 8222 Douglas Ave # 590 Dallas TX 75225
Market Tea Leaves Harder to Read
Not too long ago, it was very popular to look at the capital markets and ask what they were telling you. As an example if a certain area of the market was rising and no one knew why, many would infer that the market was “telling us” something.
Fast forward to today, with more electronics and much more global trade and global participates …
Market Tea Leaves are Still Readable, but Harder
In our opinion, closer attention must be paid to the economic and fundamental factors today. Frequently capital markets and other tea leave indicators many need to be ignored. This is especially important in the “Breaking News” .. World is coming to an end … headline driven market. We see frequent tea leave warnings, that are just not relevant today!
The Tea Leaves do certainly exist but may take a bit more patience to get their true meaning. The afore mentioned electronics, and global participants can frequent and easily be caught off guard, which may lead to a false signal.
As we say frequently, never go “All in our All out” (the subject of another discussion) great allocations, patience and analysis still work even with more subtle Tea Leaves!
John A. Kvale CFA, CFP
Founder of J.K. Financial, Inc.
A Dallas Texas based fee only
Financial Planning Total Wealth
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Posted in Economy, Interest Rates, Investing/Financial Planning, Market Comments
Tagged Market Tea Leaves, tea leaf, Tea Leaves