Bloomberg article about the impact of declining oil prices

Junk Bond Bubble About to Pop on Back of Oil Price Decline

Update: High yield bonds at new lows! We are on record suggesting that the Federal Reserve’s reckless 0% interest rate for the last six years has created a bubble in junk bonds:

The Bond Bubble is in Junk Bonds, Not Treasuries

Junk Debt & Auto Loans Reminiscent of Subprime in ’07

Now, we’re about to see the defaults start coming from the energy sector, due to the collapse in oil prices as written about in a recent article from Bloomberg. According to Dealogic and Lawrence McDonald, author of A Colossal Failure of Common Sense: The Inside Story of the Collapse of Lehman Brothers, oil and gas exploration companies issued $70 billion in junk bonds in 2014 alone.

So, is it any surprise that the junk bond ETF JNK hit a 52-week low today?

Just like subprime imploded in late ’06/early ’07, and the S&P continued to party on, were seeing stocks do the same today. But, even a few defaults could cause a cascade of liquidations which will have follow on effects. It’s time to exit junk and up your quality, if you haven’t already.

The time zone we reference on our charts is Pacific Standard Time. Therefore, the U.S. cash market opens at 6:30 AM PST and closes at 1:00 PM PST.

About The Wolf

Twenty years is a long time to be involved in the trading business. Through many battles in every asset class known to man, knowledge has been gained; and, this project is a way to share that knowledge. The Wolf is a big fan of repeatable market work, or the creation of a “process.”

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