High-Yield Bond Prices’ May Forecast Equity Price Movements

Stock market participants “seeking an informational edge should keep their eyes on junk-bond prices on the heels of earnings reports,” according to a recent Bloomberg article. In a paper from the University of California at Berkley, assistant professor Omri Even-Tov shares findings stemming from analysis of bond returns following nearly 20,000 quarterly earnings announcements of 770 companies between 2005 and 2014. He writes, “The bond price reaction provides incremental explanatory power for post-announcement stock returns… Read More

Is the Weakness in High Yield Signaling a Recession?

  The Wall Street Journal notes that U.S corporate high-yield bonds are down 2% this year, which would be only the fifth annual loss on a total-return basis since 1995. High-yield bonds are issued by heavily indebted companies that are more likely to default, and declines in their value can signal a coming downturn. George Bory of Wells Fargo Securities sees a “meaningful disconnect between equities and high yield.” Defaults on such bonds jumped from… Read More