High Yield Signals Trouble
Posted: Monday, January 11th, 2016

Over the past twelve months there has been a growing divergence between the performance of high yield corporate bonds and U.S. equities. Given the historically strong correlation between these two markets, we believe this divergence is a warning sign to market participants. High yield corporate bond spreads reached their tightest levels in June 2014 and have since continued to widen even though equity markets have continued to rally. What are investors to make of this unusual divergence between these two asset classes which are normally highly correlated?

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