Technician
Short

The High Yield Bonds Market Says it ALL

AMEX:HYG   ISHARES TRUST IBOXX USD HIGH YIELD CORPORATE BOND ETF
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The S&P500 is highly correlated with the high yield bond indices. Here is a chart that illustrate this correlation and warn of something major ahead..


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Technician
Excellent correlation! And I agree on the gloomy long term view...
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I like the ratio trade. Go long the HYG and short the S&P500, dollar for dollar. Risk 10% to make 10%.
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Thank you Tech! I think there're 2 questions. 1, FRB still in SPX. 2, Which one is more correlated with indexes, DXY or HYG?
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Nice chart, really interesting, thanks for sharing.
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I do believe a very high probability of 50% and probably also 61.8% retracements as shown on this chart.
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BuySellBuySell BuySellBuySell
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Stock market down? OR bond market up?? :)
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fraxel BuySellBuySell
I am also monitoring this difference for a long time but two things to mitigate because it is not that straight forward:
first the HYG graph doesn't take dividends into account (neither SPX but difference on average 4% a year div HYG 6% vs spx at 2% which makes not -24% but -8%, I don 't have access to my bloom to do the exact calculation since early 2012).
second now the yield of HYG is circa 7.5% but if one breaks into it, Energy is leading the pack at +14% and Material at +10% rest of sectors are in the 5 to 7% which is not alarming (yet...). better then to look at a widening of other sector spreads.
hunt for yield is strong and willingness of central banks to tighten very weak.
lets wait the spx to take a real stance...
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I dont think yield will be in the u.s. stock markets anyway in the coming years. Probably somewhere else with easier monetary policy and better valuations.
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Technician BuySellBuySell
Well, obviously i think the stock market the one who will go down. This is one indicator, yet many breadth indicators are suggesting stocks will probably go down.
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