High yield (high risk) divergence

High yield credit divergence w/ SPX as well

No divergence as the proxy for high yield junk bond funds, the Merrill Lynch High Yield Master II Index hit an all time *historical high* yesterday just as it has done seemingly week after week and day after day since early August. Many of the open end junk bond funds are also trading at or a penny or two below their historical highs on a total return basis. If you want to see a chart of beauty check out that Merrill Lynch Index (h0a0) Click on the link below and then in the box that shows Index/Bond ID type in h0a0. That's the number 0 not the letter O. Then click on where it says refresh. You will get a chart and can click on time periods ranging from one month to two years.


http://www.mlindex.m...amp;sCurr=0|LOC

link doesn't work..but isn't HYG etf more inclusive of the universe of high yielders out there...

link doesn't work..but isn't HYG etf more inclusive of the universe of high yielders out there...

Link should work (just worked for me) you just have to follow my instructions by typing in the symbol and then clicking on the box that says refresh. The Merrill Index is a total return index and is comprised of thousands of junk bonds. I have never found the junk ETFs such as HYG, JNK, or PHB or the closed end junk bond funds to be very useful tools in determining what is actually occurring on a day to day basis in junkland if only because they don't trade at NAV. I've seen days where they have declined 1%, 2% and more and where the actual junk bond cash market was up and the open end junk funds were higher. Plus, with junk, you have to use a total return chart and the h0a0 is one the few that fits that bill. You can PM me if you still have trouble bringing up the chart.

As an aside, this has been one for the record books for junk bonds. The Merrill Lynch Index is up over 50%+ YTD and going back to 1871, the S&P index and its predecessor indexes have only matched that feat three times - in 1954, 1935, and 1933.

Your HYG isn't adjusted for dividend distributions. The red bar on October 30 should actually be lower than the next day's bar. Chart HYG with COMPQ overlaid. You'll actually find the COMPQ has been lagging recently.

Edited by Data, 11 November 2009 - 03:26 PM.

that is not surprising..as the biggest buyer out there, the fed, has been buying junk like crazy (MBS)..in hindsight it was a no brainer

that is not surprising..as the biggest buyer out there, the fed, has been buying junk like crazy (MBS)..in hindsight it was a no brainer

It was a no brainer in December when junk bonds were pricing in a projected default rate of close to 22% which was much higher than the default rate during the Great Depression.

The MBS the FED has been buying aren't considered junk. They're prime quality "on the run" MBS that would be a compliment to any portfolio. Just the letters "MBS" have grown to carry such a stigma that the uninformed think every housing bond is already technically in default.....not the case at all. Not trying to be argumentative andiron, just wanted to clear up a misconception. Best.....

U.F.O.

Saw that 25% of the federally-backed loans of the last two years were in default.

Go back and re-read your article. There's a difference between default/foreclosure and delinquency. ARM's are the largest class of MBS involved with either. ARM's are NOT included in the FED's ongoing buy program. The FED isn't buying junk MBS.

U.F.O.