Credit Markets
I just wanted to post a short update as I look at the stock market, corporate bonds, and treasuries this afternoon.
Junk bond yields today (as measured by HYG) fell 2.63% today, 30 year treasury yields fell 2.2% today, and the S&P 500 fell 2.58%. This may be a sign that the market is turning.
As I have mentioned in previous articles, I have been watching the credit markets for a sign that people are beginning to realize the real risk that is still out there, and these numbers show that this may be beginning.
As junk bond yields fall, it shows that investors are seeing more risk in the corporate credit markets, and the rise in treasuries (or the decline in their yields) shows that investors are still flocking to the safety of treasuries. Many are probably taking profit from their stock gains and putting their money right into treasuries, and this seems like a good move to me.
I expect that treasury yields can come down a lot more, and corporate bond yields are definitely very low for the amount of risk out there right now, so they have a lot of room to rise. If this is the beginning, we can expect a significant downturn in the market, a downturn in corporate bonds, and a rise in treasuries.
This is what I am expecting to happen...eventually. As I have said, the market today could be showing us some signs that this is beginning to happen now, but the markets may still have more rally left in them. The next week or two should give us a more accurate picture as we see how the credit markets play out. The more the credit markets deteriorate, the more likely it is that this rally has ended.