• 3 minutes e-car sales collapse
  • 6 minutes America Is Exceptional in Its Political Divide
  • 11 minutes Perovskites, a ‘dirt cheap’ alternative to silicon, just got a lot more efficient
  • 21 mins GREEN NEW DEAL = BLIZZARD OF LIES
  • 1 day Does Toyota Know Something That We Don’t?
  • 4 days OPINION: Putin’s Genocidal Myth A scholarly treatise on the thousands of years of Ukrainian history. RCW
  • 1 day World could get rid of Putin and Russia but nobody is bold enough
  • 5 hours America should go after China but it should be done in a wise way.
  • 4 days CHINA Economy IMPLODING - Fastest Price Fall in 14 Years & Stock Market Crashes to 5 Year Low
  • 3 days China is using Chinese Names of Cities on their Border with Russia.
  • 4 days Russian Officials Voice Concerns About Chinese-Funded Rail Line
  • 3 days CHINA Economy Disaster - Employee Shortages, Retirement Age, Birth Rate & Ageing Population
  • 4 days Putin and Xi Bet on the Global South
  • 4 days "(Another) Putin Critic 'Falls' Out Of Window, Dies"
  • 5 days United States LNG Exports Reach Third Place
  • 5 days Biden's $2 trillion Plan for Insfrastructure and Jobs
  • 9 days huge-deposit-of-natural-hydrogen-gas-detected-deep-in-albanian-mine

Breaking News:

Chicago Files Suit Against Big Oil

Economist Warns of AI Bubble in U.S. Equity Market

Economist Warns of AI Bubble in U.S. Equity Market

Capital Economics warns that while…

Maersk Tumbles as Red Sea Crisis Stings

Maersk Tumbles as Red Sea Crisis Stings

A.P. Moller-Maersk A/S, the world's…

Mad Hedge Fund Trader

Mad Hedge Fund Trader

John Thomas, The Mad Hedge Fund Trader is one of today's most successful Hedge Fund Managers and a 40 year veteran of the financial markets.…

More Info

Premium Content

Are Junk Bonds Peaking?

There is no happier corner of the fixed income universe, which has been soaring like a bat out of hell for the past two years. Average yields for the bond class most sensitive to the economy have collapsed from 18% to near an all-time low of 6.8% a scant 440 basis points over Treasury bonds.

The ETF (JNK), which I have been aggressively recommending since 2009, has clocked a two year total return of close to 130%. In fact, junks bonds have outperformed stocks by a substantial margin since the great bull market began in March, 2009.

If you look at the two year chart for (JNK) it virtually tracks the S&P 500 one for one, and therein lies the problem. When bonds act like stocks, what happens to bonds when stocks go down? That is a particularly pertinent question these days as stocks have more than doubled in two years, and are approaching grotesquely overvalued levels. After a move the stock index’s multiple from 10 to 15, with 16 a possible top, are junk bonds peaking out here? The better question might be whether high oil prices are poised to slam bonds worse than stocks.

A 440 basis point premium does not sound like much. It is pricing in the near absence of risk in this paper, as if they will live forever? When did I last see this movie? 2006? 2007? How short memories have become.

It might be worth taking some money off the table here, and taking the hit in the return on your portfolio. Lowering the beta is prudent, especially if you are about to move from a “RISK ON” to a “RISK OFF” world for more than a day. No doubt, much of the juice in (JNK)’s recent moves came from Ben Bernanke’s QE2, which will end promptly on June 30. Do you really want to wait for the music to stop playing before you grab a chair?

If a client is holding a gun to your head, demanding that you reach for yield with some high risk exposure, then consider foreign junk exposure. At least there, you have the triple tailwinds of higher economic growth, appreciating currencies, and much higher yields.

By. Mad Hedge Fund Trader


Download The Free Oilprice App Today

Back to homepage





Leave a comment
  • Anonymous on March 07 2011 said:
    You might want to check that 130% total return on JNK over the past two years. It's nowhere near that on a total return basis.

Leave a comment




EXXON Mobil -0.35
Open57.81 Trading Vol.6.96M Previous Vol.241.7B
BUY 57.15
Sell 57.00
Oilprice - The No. 1 Source for Oil & Energy News