Junk Debt In Context

by Chris

As always, I continue to track the most “outside in,” peripheral, junky stuff searching for clues as to when the next leg down might commence.

I’ve said recently “not yet” and I still don’t see major signs of stress….yet.  Sure there’s slightly more volatility and equities are no longer simply only going higher, but the junk debt markets are surprizingly calm.

While they have fallen a bit, they are not yet flashing red.  Maybe a light yellow color.

However, we might note that the severe strains I was warning about in 2016 were only tamed by the LARGEST MONEY PRINTING OPERATION IN WORLD HISTORY.  Sorry for the ALL CAPs but it was really an extraordinary response to ordinary market gyrations.  Makes you kind of wonder what the central banks feared, eh?

Now that bond spreads are rising again, the question becomes; what’s going to reverse them this time?

I would submit to you that theonly thing that can work here would be more money printing.  The trouble is, every central bank besides China’s is committed to no more printing.  At least for now.

All that said, for now the spreads are indicating very low levels of stress…Rising, but not all that much.

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