Junk science: High-yield bonds hold key for stocks

View gallery

Junk science: High-yield bonds hold key for stocks

If restricted to only one indicator to handicap the stock market, one could hardly do better than this picture of the high-yield bond market. It shows the spread between junk-bond index yields and 10-year Treasury yields, and it captures most of the key drivers of financial markets: the pull of low yields, willingness to embrace risk, the outlook on corporate profits and liquidity conditions.

Note the long decline since the panic environment of 2009, coinciding with the S&P 500’s 180% surge - interrupted by the Euro debt crisis in 2011, which produced a near-20% U.S. stock-market drop.

Since dropping to near-record lows in late 2013, junk spreads have twice spurted higher - in January-February and in the last six weeks or so. In both cases stocks quickly skidded a bit. So far, the S&P 500 remains well above where it was in the winter when spreads around current levels. There’s not a linear relationship between these to markets, but for context it shows that the stock market had run a good bit ahead of high yield since the spring.

If yield spreads settle down, it should allow for stocks to stabilize, given that absolute junk yields remain below 6% and few signs of credit risk are at hand. But if high yield continues to weaken, exacerbating choppy capital-market conditions elsewhere, it will suggest that a more important mood shift is underway and the late-summer stock-market wooziness won’t quickly pass.

View Comments (0)

Recommended for You

  • Before You Buy Alibaba, Check Out 4 Top China Stocks

    Before You Buy Alibaba, Check Out 4 Top China Stocks While investors gear up for Alibaba Group 's (BABA) hotly anticipated initial public offering, don't forget about other Chinese stocks that are worth keeping an eye on. Today's Young Guns Screen of

    Investor's Business Daily
  • Mortgage Rates Hit 3.00% APR (5/1 ARM)

    $225,000 for $949/month. No points. No obligation. Get multiple mortgage offers in minutes. Can't hurt to look. Rate quotes are Free!

    AdChoicesLendingTreeSponsored
  • Tycoon buys 30 Rolls-Royces for Macau hotel

    A Hong Kong tycoon has placed the biggest ever order for Rolls-Royce cars, agreeing to buy 30 Phantoms to chauffeur guests at a luxury resort he's building in the global gambling capital of Macau. Stephen Hung's $20 million purchase surpasses the 14 Phantoms bought by Hong Kong's Peninsula Hotel in…

    Associated Press
  • Only 4 states will see cuts to food stamps

    Cuts to the nation's food stamp program enacted this year are only affecting four states, far from the sweeping overhaul that Republicans had pushed, an Associated Press review has found. As a result, it's unclear whether the law will realize the estimated $8.6 billion in savings over 10 years that…

    Associated Press
  • "The Retiree Next Door": How successful retirees stretch their savings

    By the time she hit her late 40s, Toni Eugenia wasn’t sure she would ever be able to retire. Eugenia, 56, a pharmacy technician who lived in Houston, was nearly $200,000 in debt and earned a little over $50,000 a year.

    Yahoo Finance37 mins ago
  • Play

    Citi, Bank of America Offer Discounted Mortgages

    Citigroup and Bank of America will offer mortgages at discounted interest rates to help borrowers with low incomes or subprime credit. AnnaMaria Andriotis joins MoneyBeat. Photo: Getty.

    WSJ Live
  • SHOE COMPANY: Our CEO Just Disappeared And Most Of The Money Is Gone

    "and like that: he's gone." This is an actual headline from a company press release: "CEO and COO disappeared, most of the company's cash missing." (Via FastFT) In a statement, German-based shoe company Ultrasonic said its CFO,  Chi Kwong Clifford Chan, has been unable to reach the company's CEO,…

    Business Insider
  • Margaritaville casino owners seek bankruptcy

    The owner of Biloxi's Margaritaville casino has filed for Chapter 11 bankruptcy protection Tuesday, only hours before a hearing where the landlord aimed to seize the property. The filing by MVB Holding LLC in U.S. Don Dornan, a lawyer for landlord Clay Point LLC, said the company had planned to ask…

    Associated Press
  • AARP® Auto Insurance Program from The Hartford

    50+? Request a free quote and you could save $404* on Auto Insurance from The Hartford!

    AdChoicesThe HartfordSponsored
  • Apple to unveil new iPads, operating system on Oct. 21 : report

    The company plans to unveil the sixth generation of its iPad and the third edition of the iPad mini, as well as its operating system OS X Yosemite, which has undergone a complete visual overhaul, the Internet news website said. Trudy Muller, a spokeswoman for Apple, declined to comment. The iPad is…

    Reuters
  • Here's What Mark Cuban Wishes He Knew About Money In His 20s

    Cuban is the owner of the Dallas Mavericks basketball team. Billionaire investor and entrepreneur Mark Cuban is generous with his advice. When we asked him what he wishes he'd known about money in his 20s, he said:

    Business Insider
  • Gold loses luster on Fed; Barclays cuts forecast

    Barclays cuts gold forecasts, sees increasingly bearish backdrop Bloomberg MA MB MC MD ME SAN FRANCISCO (MarketWatch) — Gold prices dipped Wednesday on concerns about a stronger dollar ahead of the Federal Reserve policy statement and in response to Barclays lowering its gold forecast.

    MarketWatch
  • Embraer to sell 50 E-175 jets to Republic in $2.1 billion deal

    Brazil's Embraer SA, the world's third largest commercial planemaker, said on Wednesday it booked a firm order from U.S. The deal, which will be included in Embraer's order book for the third quarter, is valued at $2.1 billion, the planemaker said in a securities filing. The planes will be operated…

    Reuters
  • Top Analyst Upgrades and Downgrades: AEP, BHP, GE, Incyte, 3M, Tyco, Under Armour and More

    Top Analyst Upgrades and Downgrades: AEP, BHP, GE, Incyte, 3M, Tyco, Under Armour and More Stocks were firm on Wednesday morning ahead of the FOMC meeting outcome. Tuesday’s rally may have sparked higher interest again, and investors are looking for bargains

    24/7 Wall St.
  • Boeing may have outfoxed Musk, but it could have bigger problems

    Elon Musk is arguably one of the greatest entrepreneurial minds of the 21st Century, but he was outsized an old school aerospace giant. Boeing won the bulk of NASA’s contract for a space taxi.  One of the other companies vying for the deal is SpaceX, the company headed by Tesla’s Musk, will get a…

    Talking Numbers
  • 1 Tip To Lose Belly Fat

    It's Hollywood's Hottest Diet And Gets Rid Of Stubborn Fat Areas Like Nothing Else.

    AdChoicesagoodcooksSponsored
  • The Government Keeps Helping People Buy Failing Cold Stone Creamerys

    Would you loan someone money to buy a Cold Stone Creamery franchise if you knew that more than a quarter of those loans default? Over the last decade, franchisees in the Cold Stone Creamery ice cream chain defaulted on 29 percent of working-capital loans backed by the government, costing taxpayers…

    BusinessWeek
  • Romney-Sized IRAs Scrutinized as Government Studies Taxes

    The preliminary report attaches data to an issue that drew attention during the 2012 presidential campaign, when Republican nominee Mitt Romney reported an IRA worth $20 million to $102 million. Senate Finance Committee Chairman Ron Wyden said many of these "massive" accounts come from deals…

    Bloomberg
  • Big Minnesota insurer leaves Obamacare site

    The "Blue Ox" of Minnesota Obamacare is calling it quits. PreferredOne, the insurer that sold nearly 60 percent of all private health plans on Minnesota's Obamacare exchange, on Tuesday said it would leave that marketplace. PreferredOne's plans were the lowest-cost options on that exchange, known…

    CNBC
  • Play

    What the Fed Meeting Means for Bonds

    Janet Yellen & Co. are expected to hint at their timetable for raising interest rates. Here's how investors should prepare ahead of the meeting.

    WSJ Live
  • Facebook Is Hiding Important Information From Investors

    Facebook Is Hiding Important Information From Investors Facebook.com/sheryl On July 23, when Facebook reported its earnings for the second quarter, the company stunned everyone. Revenues were $2.68 billion, up 67% from the same quarter during the year

    Business Insider
  • Top Analyst Upgrades and Downgrades: Arch Coal, Coca-Cola, Duke Energy, Microsoft, Oracle, Visa and More

    Top Analyst Upgrades and Downgrades: Arch Coal, Coca-Cola, Duke Energy, Microsoft, Oracle, Visa and More Stocks were soft on Tuesday after mixed fanfare on Monday. Investors are still looking for opportunities now that some stocks have pulled back. 24

    24/7 Wall St.
  • Take Your Career in Law to the Next Level!

    Earn an accredited Master of Laws in only 1 year. 100% online, No LSAT required, and 5 concentrations offered, including Taxation Law. Apply today!

    AdChoicesThomas Jefferson Law Sponsored
  • Airbus Keeps A380 Production Rate Even With Scarce Orders

    Airbus Chief Executive Officer Fabrice Bregier said the company can maintain a production rate of almost 30 A380 a year even amid slack demand, and will seek to build fresh interest with superjumbos coming off lease. Bregier, speaking at the Airbus factory in Hamburg, where Qatar Airways Ltd. took…

    Bloomberg