Dividend-News - Is High Yield Signaling A Warning To The Stock Market?

Is High Yield Signaling A Warning To The Stock Market?

Published Fri, 10 Nov 2017 12:41:15 -0500 on Seeking Alpha

We have been stressing the tightness of spreads for many months now though we noted in our recent article titled "Current Valuations In the Bond Market- Part II" that spreads can remain tight for an extended period of time. Since the publication of that report, spreads have moved fairly sharply with the BofA HY OAS spread index falling for six straight days.
The sector has seen quite the run since the bottom of the market in 2009 returning 14% annually aided by low interest rates. In 2016, the space returned over 17% and is up another 7% in 2017 through the end of October.
While still at very low levels, the spread index has moved in a sharp fashion, especially the last few days. Could this be indicating an end to the bull market or some sort of correction, or is this simply profit-taking in an overvalued asset class?

The iShares iBoxx High Yield Corporate Bond ETF- (HYG) has seen a significant amount of volume in the last week. The ETF has been a popular place to park assets and generate a ~5% yield. We have always stated never buy a passive ETF that invests in fixed income. Bonds are a fairly illiquid asset class and to house them into a structure that is a actively-traded intraday vehicle is a dangerous strategy.
The main driver of the sell-off is likely a string of poor earnings reports by a few larger high yield issuers shining a spotlight on the sector. One of the latest is CenturyLink (NYSE: CTL), a heavily leveraged telecom that has several... Read more

Stock name	ISIN	Last trade	P/E	Earnings/Share	Dividend/Share	Dividend yield
DREYFUS HIGH YIELD STRATEGIES	US26200S1015	3.07	0.0	0.00	0.27	9.63
MFS INTERMEDIATE HIGH INCOME FUND	US59318T1097	2.68	0.0	0.00	0.00	9.08
CS HIGH YIELD BOND FUND	US22544F1030	2.58	0.0	0.00	0.00	8.87
FIRST TRUST HIGHOME LONG/SHORT FUND	US33738E1091	14.97	0.0	0.00	0.00	8.82
PIONEER HIGH INCOME TRUST	US72369H1068	9.29	0.0	0.00	0.00	8.72
WELLS FARGO ADV INCOME OPP FUND	US94987B1052	8.20	0.0	0.00	0.00	8.61
ARES DYNAMIC CREDIT ALLOCATION FUND	US04014F1021	15.08	0.0	0.00	0.00	8.56
CREDIT SUISSE ASSET MANAGEMENT INCOME FUND	US2249161066	3.16	0.0	0.00	0.27	8.52
WA HIGH INCOME FUND II	US95766J1025	6.76	0.0	0.00	0.00	8.27
BLACKROCK CORPORATE HIGH YIELD FUND VI	US09255P1075	10.76	0.0	0.00	0.00	8.01
FIRST TRUST STRATEGIC HIGH INCOME FUND II	US3373531066	12.35	0.0	0.00	0.00	7.77
BLACKROCK DEBT STRATEGIES FUND	US09255R1032	10.78	0.0	0.00	0.00	7.63
NEUBERGER BERMAN HIGH YIELD STRATEGIES FUND	US64128C1062	12.01	0.0	0.00	0.98	7.45
MASSMUTUAL CORP INV	US5762921063	16.54	0.0	0.00	1.20	7.27
HIGH YIELD INCOME FUND	US95768B1070	15.21	0.0	0.00	0.00	7.00
WESTERN ASSET HIGH INCOME OPPORTUNITY FUND	US95766K1097	5.07	0.0	0.00	0.00	6.98
SPDR BARCLAYS CAPITAL HIGH YIELD BOND ETF	US78464A4177	108.94	0.0	0.00	6.07	5.58
ISHARES IBOXX $ HIGH YIELD CORPORATE BOND FUND	US4642885135	87.32	0.0	0.00	4.60	5.27
PROSHARES ULTRAPRO SHORT S&P 500	US74347X8561	25.26	0.0	0.00	0.00	2.32
SPDR DOW JONES INDUSTRIAL AVERAGE ETF TRUST	US78467X1090	272.32	0.0	0.00	5.67	2.10
PROSHARES ULTRASHORT S&P 500	US74347R8833	28.97	0.0	0.00	0.00	1.97
SPDR S&P 500 ETF	US78462F1030	301.29	0.0	0.00	5.42	1.82
POWERSHARES QQQ TRUST SERIES 1	US73935A1043	193.23	0.0	0.00	1.49	0.78
ISHARES BARCLAYS AGGREGATE BOND FUND	US4642872265

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