Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your experience. Save up to 40% More details

Junk Bonds Getting Junkier

By Ed YardeniBondsAug 20, 2015 12:20AM ET
Junk Bonds Getting Junkier
By Ed Yardeni   |  Aug 20, 2015 12:20AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items

One of the best coincident and real-time indicators of bursting bubbles and recessions is the yield spread between US high-yield corporate bonds and the 10-year US Treasury. It isn’t flashing code red just yet, but it has gone from green to orange over the past year. The yield on the Merrill Lynch junk bond composite is up 205bps from last year’s low of 5.16% on June 24 to 7.21% currently. The yield spread has widened from 257bps to 501bps over this same period.

Apparently, stock traders didn’t get the all-points bulletin from the credit department. In the past, the S&P 500 VIX measure of volatility has been highly correlated with the yield spread between corporate junk and Treasuries. However, so far, it remains near this year’s lows despite the widening of the spread. That’s complacency for sure, which may or may not be warranted. It may be that stock investors figure that most of the problems in the junk bond market are in the energy segment, which accounts for about 17% of the market. That’s big, but not big enough to cause a contagion in the credit markets. Complacency can also be found in the Nasdaq 100 VIX, which has been relatively calm since early 2012.

There is less complacency in Investors Intelligence’s Bull/Bear Ratio, which plunged from 3.14 to 2.05 over the past four weeks. However, that was mostly because of a big drop in the percentage of bulls who stampeded into the correction camp rather than turning into outright bears. The percentage in the correction camp jumped to 43.9% this week, the third highest reading on record, with the all-time high set during the week of October 21, 2014 at 46.5%.

Today's Morning Briefing: When Bubbles Burst. (1) Commodity super-cycle latest bubble to burst. (2) Must a recession follow? (3) Junk getting junkier. (4) All-points bulletin from the credit department. (5) Complacent VIX. (6) Near-record high in stock correction camp. (7) Emerging markets have an urge to submerge. (8) That sinking feeling in the commodity pits. (9) What to expect when expected inflation is so low. (10) Gundlach and Kocherlakota voting for “none-and-done.” (11) Housing has solid foundation. (12) Will Millennials be single renters forever? (13) Focus on underweight-rated S&P 500 Materials.

Junk Bonds Getting Junkier

Related Articles

Tim Knight
Bonds Say Bull To Bulls By Tim Knight - Aug 12, 2022 1

On an intraday basis, equities reached multi-month highs on Thursday. All I can say is: bonds aren’t buying it. Just look at what’s going on with the high-yield world. Bearish...

Junk Bonds Getting Junkier

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
Sign up with Email