High Yield Breakdown

Could the high yield bond market be sending a precursor message to the Fed, signaling them not raise rates until 2016?
While that’s a notable possibility, the market just doesn’t seem hungry enough to gobble up excess inventory from record outstanding high yield debt levels.  Especially with intermediate to long-term fundamental challenges such as the imminent probability of a short-term interest rate hike and a barbell shaped rollover calendar centered in the 2019-2020 time frame.
These key convergences, alongside a spotty risk asset environment, have caused a breakdown from the established 2015 trading range in both the iShares High Yield Bond ETF (HYG) and SPDR High Yield Corporate Bond ETF (JNK).  Nevertheless, investors should take note that defaults have not meaningfully ticked higher and junk bonds are basically flashing the same warning signs as equities.  All the while, the credit markets feel sluggish and opportunities viewed through the lens of risk aversion seem sparse.

Looking at a total return attribution, with most high yield bond indexes yielding between 5-6%, investors have experienced slowly eroding bond prices with merely the income to keep them near the flat line for the year. (more)