Tuesday, November 21, 2017

There is No Reason to Worry About the Junk Bond (JNK) Sell-Off

     Over the last few weeks, the fixed-income world has been focusing on the junk bond sell-off.  Looking at the charts we see it's not the Armageddon event many have predicted.  Let's start with the daily chart:

Prices dropped to ~36.25 before rebounding.  They are also slightly above the 200-day EMA.  The EMA is about to give a buy signal.

     Turning to the weekly chart, we get this picture:

Yes, prices broke support by moving through the trend line connecting the late February and early August lows.  And the MACD has been grinding lower.  But it's been moving lower since 3Q16.  And all the shorter EMAs (10, 20 and 50 week) are all moving higher.

     The JNK sell-off is timed with the debt situation in Venezuela.  But that's a very small part of the market.  However, it has taken up a great deal of the headlines, which has contributed to the sell-off.  

     Unless we see other bearish headlines in this space, this is really nothing to be concerned about.