Why The Sudden Move Down ?

High Yield Bonds have sold off significantly in the past few days, as is seen of this chart of HYG and JNK. The sharpened spike in volume observed in the graph above doubtless marks heavy selling at the recent low. and the ETFs have exchanged at their highest discount rates to intrinsic value of the entire year. Not surprisingly, retail investors have been operating for the exits in response to the selloff.

688 million out of high yield mutual and exchange traded money in the week ended May 16, marking just the second week of net outflows this year, while equity money has suffered worldwide web outflows since mid-April, according to Lipper. The shift shows contagion of worries about macroeconomic risk that weighed down stocks for much of May but had previously not affected high-yield relationship markets.

Not much of an explanation if one looks at the schedules of the selloff. High produce bonds have held steady during most of the worst recent information about Europe and throughout the stock selloff. Why the unexpected move down? I haven’t seen a good dissection of the investments in the JP Morgan debacle.

An SA contributor got made a nice attempt here. The timeline of the JP Morgan news and the high produce movement appear to argue that there is a connection. JP Morgan Chase went open public with information of the deficits on, may 10. JNK prices stayed steady until May 11 and began 10 successive days of losses then, shedding 2.7% in 10 days.

  1. The FB’s who leave off their homes can re-enter the marketplace 3 years post-foreclosure
  2. Paine’s “Common Sense”
  3. International Leasing and Financial Services Limited
  4. 10 months back from Arkansas
  5. GDP: $3.033 trillion (2003 est.)

P 500 (at SPY) fell by a similar amount over that period. However the stock selloff was a continuation of design that began at the start of May. So my working hypothesis is a little different. The initial high-yield bond selloff was related to the unwind of the JP Morgan trade disaster.

Retail investors got captured in the crossfire. 754 million the week before! 778 million came out of JNK a higher yield ETF. Past the week of May 16 Because the selloff continued, I have without doubt this week’s data gives an identical picture. Exactly what does this mean for the savvy investor: probably an opportunity for investors to add a bit to their high yield positions if the selloff resumes.The downturn in prices of course means higher produce and with the rally in treasuries, JNK with the produce of 7.52% has a 5.7% produce benefit over IPE the same maturity Treasury Bond ETF.

That’s a bit over the long-term average of 5.5% . The market has steadied by today’s trading (May 22) and the ETF has moved to a premium But any more selloffs would be that buying opportunity. Further price decrease (and higher yields) and a move of ETFs to a discount would likely be attractive. Once more individual investors appear to have chased performance and produce and then skipped out on the long-term potential of asset allocation. High-yield bonds certainly bring higher volatility and higher relationship to shares than Treasuries and investment-grade corporate and business bonds.