• 4 minutes England Running Out of Water?
  • 7 minutes Trump to Make Allies Pay More to Host US Bases
  • 10 minutes U.S. Shale Output may Start Dropping Next Year
  • 14 minutes Washington Eyes Crackdown On OPEC
  • 3 hours One Last Warning For The U.S. Shale Patch
  • 8 hours Once Upon A Time... North Korea Abruptly Withdraws Staff From Liaison Office
  • 8 hours Chile Tests Floating Solar Farm
  • 7 hours Oil Slips Further From 2019 Highs On Trade Worries
  • 2 mins Modular Nuclear Reactors
  • 15 hours Poll: Will Renewables Save the World?
  • 23 hours China's E-Buses Killing Diesel Demand
  • 24 hours Trump sells out his base to please Wallstreet and Oil industry
  • 19 hours China's Expansion: Italy Leads Europe Into China’s Embrace
  • 1 day Russian Effect: U.S. May Soon Pause Preparations For Delivering F-35s To Turkey
  • 1 day Trump Tariffs On China Working
  • 12 hours US-backed coup in Venezuela not so smooth
  • 18 hours New Rebate For EVs in Canada
  • 1 day Biomass, Ethanol No Longer Green
Alt Text

Yieldcos Are Back And Better Than Ever

Yieldcos have had a rocky…

Alt Text

Stock Market Chaos Sparks Oil Selloff

Global markets took a beating…

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

Trending Discussions

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

Trending Discussions


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




Oilprice - The No. 1 Source for Oil & Energy News