Oct 12. High yield breakout

Top chart is a spread of hi yield index, (Barclay’s US Corp Hi Yld to Worst), vs 5 year treasury yield.  This chart broke a long term trendline in the middle of the year and has been rallying ever since.  Bottom chart shorts Hi Yield ETF, JNK, which made a new low today (Friday) on heavy volume.

While Corp debt has grown at a rate of 8.2% in Q1 and 6.2% in Q2 to a record $7.37T, a Bloomberg article on Oct 2 noted that S&P 500 companies have “… the lowest net debt to earnings ratio in at least 24 years”.  However, with rates rising on high yield debt, balance sheets may begin to suffer under the weight of record debt levels.

The middle chart shows $/yen which looks very similar to the break out of high yield spread.  $/yen quickly retraced 50% of its multi year decline.  If hi yield does the same, it would suggest a move of another 150 bps.

Alex Manzara  hi yld sprd Oct 2014

Yen breakout looks similar to Hi Yield spd

Yen breakout looks similar to Hi Yield spd

JNK  Hi Yield ETF

JNK Hi Yield ETF

http://federalreserve.gov/releases/z1/Current/z1r-2.pdf

http://www.bloomberg.com/news/2014-10-02/corporate-u-s-healthiest-in-decades-under-obama-with-lower-debt.html

Posted on October 12, 2014 at 10:49 am by alexmanzara · Permalink
In: Eurodollar Options

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