Tag Archives: HYG

Where Could High Yield Be Heading?

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Investors have been turning over every rock they can find in the search for yield. Causing the high yield space to be booming as of late. 2012 saw a record amount of high yield debt issued, beating out the previous record set just a few years prior in 2010. With Bernanke doing nearly all he can to suppress rates, fixed income investors are forced to continue walking further out on the risk curve.

The iShares High Yield Corp. Bond ETF ($HYG) is a popular method to play the high yield game. Going back to 2011 we can see that $HYG has been in a fairly large triangle pattern. Typically the closer we get to an apex in this type of pattern the less ‘explosive’ the breakout is, but that doesn’t mean a large move in either direction is out of the question. Momentum (RSI indicator) has been bullish during 2013, finding support at 55 and has been testing this level over the past couple of days. We can also see that bullish volume has been keeping the On Balance Volume (OBV) indicator rising – a sign that buyers continue to step in to move prices higher. Combining the support in RSI, the trend line on OBV and the support line of the triangle on price action we can get a clearer picture if we see a breakdown in the coming days/weeks if $HYG begins to lose its luster.

high yield

To continue the theme of a frothy high yield market, Bespoke put out an interesting piece comparing high yield to Treasury debt:

The chart below is from last week’s Bespoke Report newsletter, and it shows the average yield to maturity on the Merrill Lynch High Yield (Junk) Master Index.  At a current level of 5.24%, investors have never been paid less to own high yield debt.  Yields are so low, in fact, that five years ago the yield on the 10-Year US Treasury was higher than the current yield on junk bonds.  In the chart below, the red dots on the blue line represent periods going back to 2000 where the yield on the 10-year US Treasury was higher than the current yield on the High Yield Master Index.  With yields this low, high yield bonds are anything but high yielding.

High Yield vs 10 Year

Source: High Yield Yields Less Than Treasuries Five Years Ago (Bespoke)

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+, Twitter, and StockTwits.

High Yield Exhaustion

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With Treasury yields at historic lows investors have gone after yield in other segments of the market, the high yield bond market is often one of the places investors seek out in that chase for income. Today we are going to take a look at the iShares High Yield Corporate Bond ETF (HYG).

With the rally in equities, HYG has also seen its price rise, taking it back to September and October highs. Many technicians argue the validity of a triple top, but what I want to focus on is the exhaustion that appears to be happening in the high yield ETF. As HYG has gotten near the $93 level we’ve seen momentum, based on the Relative Strength Index (top panel), diminish. Each attempt to make a new high appears to be accompanied by fewer and fewer buyers. With yesterday’s price action taking us just a few cents under the previous level of resistance, the RSI is also a hair below the October level, and well under the September level in momentum.

We can also see that each rally was done on declining volume. When traders take a security to new highs or levels of resistance, they often look for heavy volume to be present. Large volume tells us that there is a lot of demand for shares, which we don’t seem to be seeing in HYG. Instead, each rally attempt has been on dying volume, giving traders less confidence that resistance can be broken.

With that said, there is still some hope for HYG. As I wrote yesterday, this market is currently swaying to the words of Congress. If we get a debt deal then there’s a definite possibility that the $93 level can be taken out and bulls will maintain in control.

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+.