Mish Shedlock: Expect the Junk Bond Bubble to Burst First

by Mish Talk

Bubble Bursting Order

When will the stock market bubble burst?

I don’t know, nor does anyone else. But I suspect the junk bond market is likely to go first.

Bloomberg reports U.S. Junk Bond Yields Hit Record Low as Vaccine Hope Fuels Rally

The average yield for the Bloomberg Barclays U.S. corporate high yield index plummeted to 4.56%, sinking below the previous record of 4.83% set in June 2014. The 45 basis point decline from Friday’s close was the steepest fall since April 9, when the Federal Reserve expanded its corporate bond purchases to include some junk debt.

Investors are still pouring money back into retail funds that buy junk-rated debt with an estimated inflow of $3.23 billion by Friday’s close, JPMorgan Chase & Co. analysts wrote in a note, citing Refinitiv Lipper. The cash influx was led by HYG, the biggest high yield exchange-traded fund, with net incoming cash of almost $1.9 billion. JNK, the second biggest ETF, raked in $511 million.

Observation

Vaccine news is hopeful, but long-term cash flows haven’t suddenly jumped beyond where they were pre-SARS-CoV-2. This is easily the worst passive investment menu in U.S. history.

Reminder

Mish

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