JNK Bonds Cracking! Bad JUJU!
First off this is an updated chart. Here is the original chart I posted here on TV back on Jan 5, 2022
I typically hate wedges. They have a tendency to break one way and then reverse the other. Having said that The fundamentals right now compel me to post this chart as bearish.
People have this false idea in their heads that bond yields work like a light switch. On and off. meaning a higher rate for a short period of time is enough to blow everything up. That's nonsense. Not how it works when yields rise.
However, let me clarify something, when rates fall the effects can be felt much quicker bc people are eager to run out and refi to upgrade a home or use it like an ATM or buy a home to lock in lower rates.
When it comes to biz on the other hand they have to roll over debt they don't have a choice. So junk bonds are a completely different animal altogether. That means if this chart starts to break down and holds with something like 50% of bonds have to be rolled over in the next 5 years. Xombie companies will start to blow up, jobs will be lost, wages will be lost (obviously) consumption will fall and we will end up somewhere not very desirable.
There is more but I won't get into it here. Just remember to keep an eye on this chart bc your job may depend on it. Forget about the trading aspect of it all.
I typically hate wedges. They have a tendency to break one way and then reverse the other. Having said that The fundamentals right now compel me to post this chart as bearish.
People have this false idea in their heads that bond yields work like a light switch. On and off. meaning a higher rate for a short period of time is enough to blow everything up. That's nonsense. Not how it works when yields rise.
However, let me clarify something, when rates fall the effects can be felt much quicker bc people are eager to run out and refi to upgrade a home or use it like an ATM or buy a home to lock in lower rates.
When it comes to biz on the other hand they have to roll over debt they don't have a choice. So junk bonds are a completely different animal altogether. That means if this chart starts to break down and holds with something like 50% of bonds have to be rolled over in the next 5 years. Xombie companies will start to blow up, jobs will be lost, wages will be lost (obviously) consumption will fall and we will end up somewhere not very desirable.
There is more but I won't get into it here. Just remember to keep an eye on this chart bc your job may depend on it. Forget about the trading aspect of it all.
Real Macro Economic Investing
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MAGIC!