Tuesday 02February2016 - Bonds and Stocks Diverging!


Clips from Danielle Park's excellent blog.


High yield prices began to plunge in late 2006 as the subprime bomb blew.  Stocks joined the descent late 2007 to early 2009.  By the bottom, high yield bonds had lost an average of 38% and the S&P 500 55%.  Both then rallied two years, before slumping afresh with global revenues in mid 2011, and rallying into 2013 on QE ‘liquidity’.  That was then.


Since 2013, high yield bonds have been diving (down some 18% so far) even as the S&P 500 managed to limp higher into mid-2015 on ‘FANG’ fumes (Facebook, Amazon, Netflix and Google).


High yield bonds broke below their 2011 support line last fall (horizontal green band above) and so far continue to drop as 2016 brings rising defaults and write-downs.


Click image to enlarge.