High Yield Signals Trouble
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?
The Chinese Wall of Worry: Global Growth and Market Volatility
Over the past week stocks have seen a wave of selling and spikes in volatility as concerns mount about slowing global growth. China's stocks witnessed their steepest five-day drop since 1996 in volatile trading as Chinese equities have lost nearly half their value since mid-June. The Chicago Board Options Exchange Volatility Index (VIX), a widely watched gauge of volatility, spiked to 53.29, its highest level since January 2009.
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