Tyler Kling of Macro-Ops Says Junk Bonds Will Signal Equity Market Inflection Point

Jon Banking, Economy, Fiscal Policies, Government, Market Commentary, Real Estate

With near-zero interest rates and even negative rates appearing around the world, investors have rushed into high-yield (“junk”) debt. This time on FS Insider, Tyler Kling of Macro-Opsexplained why markets are likely facing a major inflection point depending on what happens in the junk bond market.
Junk Debt Will Signal Inflection
‘What’s happened since the financial crisis is the Fed has lowered interest rates to zero and…you can no longer earn that much income just investing in government fixed income,’ Kling told listeners.
As a result, investors are seeking riskier alternatives to government debt, such as high-yield (“junk”) debt, real estate, dividend-paying assets and energy MLPs.
Junk debt now serves as key watchpoint for which direction the market is likely to head or if higher highs in the stock market are sustainable.
‘If junk debt continues to stay bid up, and emerging markets continue to stay bid up, then investors are going to have a risk-on mindset, and any type of deleveraging scenario will be pushed off farther down the line,’ he said.

This post was published at FinancialSense on 06/20/2016.