{"id":36240,"date":"2013-02-17T11:37:42","date_gmt":"2013-02-17T16:37:42","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/?p=36240"},"modified":"2013-03-10T21:49:22","modified_gmt":"2013-03-11T01:49:22","slug":"is-the-rally-in-junk-over","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2013\/02\/17\/is-the-rally-in-junk-over\/","title":{"rendered":"Is the Rally in Junk Over?"},"content":{"rendered":"

By The Sizemore Letter<\/u><\/a> <\/p>\n

Pick up any financial newspaper over the past two weeks, and you\u2019ll read about the selloff in junk bonds and what it might portend for the stock market.<\/p>\n

Remember, though junk bonds are fixed income, their risk characteristics make them more similar to equities.\u00a0 Junk bonds carry higher default risk and are thus far more sensitive to the health of the economy than investment-grade bonds.\u00a0 In the world of risk on \/ risk off, junk bonds certainly qualify as risk assets.<\/p>\n

So, the recent headlines caught my attention.\u00a0 There\u2019s just one little problem.\u00a0 They\u2019re not true.<\/p>\n

\"SPDR<\/a><\/p>\n

SPDR Barclays High Yield ETF (NYSE:JNK).<\/p>\n<\/div>\n

Take a look at the SPDR Barclay\u2019s High Yield ETF (NYSE:$<\/span>JNK<\/a>)<\/strong>.\u00a0 Yes, the ETF has spent most of February in correction.\u00a0 But from peak to recent trough, the losses have barely amounted to 3%.<\/p>\n

Plus, this isn\u2019t the first time.\u00a0 Over the past year, junk bonds have had five selloffs of comparable (or greater) magnitude.\u00a0 And yet junk bonds have recovered every time.<\/p>\n

Nothing lasts forever, and the junk bond rally will eventually fizzle.\u00a0 But with junk bond yields still over 6% in an environment in which the 10-year Treasury only yields 2%, I have no reason to believe that the top is in.<\/p>\n

And as for equities,\u00a0 we\u2019ve already seen something of a correction.\u00a0 U.S. stocks have been flattish in February, and most European markets are down sharply from their highs for the year.\u00a0 It\u2019s hard to argue that the modest fall in junk bond prices suggests that a larger correction is imminent.<\/p>\n

Bottom line: It\u2019s still a \u201crisk on\u201d market, and I recommend staying aggressively invested.<\/p>\n

Disclosures: Sizemore Capital has no positions in any security mentioned. This article first appeared on TraderPlanet.<\/p>\n

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The post Is the Rally in Junk Over?<\/a> appeared first on Sizemore Insights<\/a>.<\/p>\n

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