{"id":37487,"date":"2023-07-18T22:33:55","date_gmt":"2023-07-19T02:33:55","guid":{"rendered":"https:\/\/ifintechworld.com\/markets\/this-junk-bond-market-measure-signals-appetite-for-risk-as-stocks-jump-this-year\/"},"modified":"2023-07-18T22:33:57","modified_gmt":"2023-07-19T02:33:57","slug":"this-junk-bond-market-measure-signals-appetite-for-risk-as-stocks-jump-this-year","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=37487","title":{"rendered":"This junk-bond-market measure signals appetite for risk as stocks jump this year"},"content":{"rendered":"
\n

The amount of extra yield that investors demand for risky corporate bonds has fallen, in a sign beyond the stock-market rally that fears that a U.S. recession may be looming may have abated.\u00a0<\/p>\n

\u201cHigh yield spreads, as measured by the BofA High Yield Master Index, dropped to their lowest levels since April 2022 last week, ending what was more than a year-long drought without a 52-week low,\u201d said Bespoke Investment Group, in a note emailed Tuesday. \u201cAs markets have rallied and the gains have broadened out, the number of indicators confirming the equity market\u2019s rally has also started to expand,\u201d with high-yield debt being the latest example.<\/p>\n

\n

In the U.S. junk bond market, high-yield spreads over comparable Treasurys tightened to 390 basis points on July 14, the Bespoke chart below shows.\u00a0<\/p>\n

<\/p>\n
<\/p>\n<\/figure><\/div>\n

\u201cHigh-yield spreads typically move in the opposite direction of stock prices, so when spreads hit 52-week lows, stocks are typically at or near 52-week highs,\u201d said Bespoke.<\/p>\n

Credit spreads in the high-yield bond market tend to increase when investors become anxious about possible economic trouble ahead.<\/p>\n

The \u201cimplosion\u201d of Silicon Valley Bank and First Republic Bank in March \u201csparked worries of a broader tightening of credit in riskier parts of the market but based on recent moves in the high-yield market, that sector has been relatively unscathed,\u201d said Bespoke.\u00a0<\/p>\n

Investors worried that a potential pullback in lending due to the regional-bank failures would lead to an economic downturn that many already feared was looming because of the Federal Reserve\u2019s aggressive monetary tightening aimed at taming elevated inflation.\u00a0<\/p>\n

Read:<\/strong> \u2018I don\u2019t expect a recession\u2019: Yellen says U.S. economy on \u2018good path\u2019<\/p>\n

Meanwhile, bank stocks jumped Tuesday after major Wall Street firms including Morgan Stanley reported their quarterly earnings, helping to fuel broad stock-market gains.<\/p>\n

The U.S. stock market has been climbing in 2023, with the S&P 500 continuing to rise after booking its strongest first half of a year since 2019. The index has soared 18.6% so far this year, ending Tuesday at a 52-week high.\u00a0<\/p>\n

The S&P 500
\n SPX,
\n +0.71%<\/bg-quote>
\n closed at 4,554.98, its highest closing value since April 4, 2022, according to Dow Jones Market Data.\u00a0<\/p>\n

Junk bond ETFs have also posted gains this year. For example, the SPDR Bloomberg High Yield Bond ETF
\n JNK,
\n +0.25%<\/bg-quote>
\n has seen a total return of 6.2% so far in 2023, FactSet data show.<\/p>\n

\u201cFriday\u2019s decline in high-yield spreads was notable since it ended a streak of more than a year (386 trading days) where high-yield spreads went without hitting a 52-week low,\u201d said Bespoke.<\/p>\n

With high-yield spreads below 400 basis points, \u201cthey are near the low end of their historical range,\u201d the firm said. \u201cWhenever spreads near historically low levels, it raises concerns that sentiment is getting too complacent as investors require much less normal compensation to account for the riskier credit quality of issuers.\u201d\u00a0<\/p>\n

But the firm found that history since 1998 shows the S&P 500 may wind up higher a year after high-yield spreads hit a 52-week low \u201cafter at least 200 trading days without doing so.\u201d<\/p>\n

\u201cWhile shorter-term performance may have been on the weak side, longer-term performance was better,\u201d said Bespoke. \u201cOne year later,\u201d said Bespoke, the S&P 500 had \u201can average return of 9.3% versus a long-term average of 6.9%.\u201d<\/p>\n<\/p><\/div>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

The amount of extra yield that investors demand for risky corporate bonds has fallen, in a sign beyond the stock-market rally that fears that a U.S. recession may be looming may have abated.\u00a0 \u201cHigh yield spreads, as measured by the BofA High Yield Master Index, dropped to their lowest levels since April 2022 last week, […]<\/p>\n","protected":false},"author":1,"featured_media":37488,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"gallery","meta":{"footnotes":""},"categories":[241],"tags":[83],"class_list":["post-37487","post","type-post","status-publish","format-gallery","has-post-thumbnail","hentry","category-markets","tag-featured","post_format-post-format-gallery"],"yoast_head":"\nThis junk-bond-market measure signals appetite for risk as stocks jump this year | iFintechWorld<\/title>\n<meta name=\"description\" content=\"The amount of extra yield that investors demand for risky corporate bonds has fallen, in a sign beyond the 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