We have looked at plenty enough evidence in recent weeks that a crash is looming for US markets, and now we are going to take a look at another important piece of evidence that we haven’t previously considered – the Junk Bond market.
When confidence deteriorates Junk Bonds get sold off. A reason for this is that Junk Bond Holders are low on the list of creditors who can expect to be paid off in the event of corporate default, hence the name. They yield more because they carry more risk, so when risk threatens to rise or rises, savvy holders want out.
Thus it is interesting to see that Junk Bonds have just fallen to a 3-year low. This is a leading indicator for the market and it means trouble. We can see what has happened on the charts for the SPDR Barclays High Yield Bond ETF, code JNK, shown below. If you can’t tell that this is a Junk Bond ETF from the name, you sure can from the code. They have gone into a persistent downtrend from the start of June as we can see on the 1-year chart, which has already taken them to a 3-year low, as can be seen on the 8-year chart. We are using Bigcharts charts here because Stockcharts appear to be carrying inaccurate data, and two 1-year charts are shown, with one showing volume and On-balance Volume, and the other showing a comparison with the S&P500 index, and two 8-year charts.
