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:
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.