01Oct10:22 amEST

Hey, Jay: Whatchu Gonna Do With All That Junk?

As shocking as it was when The Fed announced it would buy junk bonds last year, it has been equally shocking (although not surprising at this point) how accepted it has become. Indeed, the JNK and HYG ETFs have flourished since March 2020, alternating between periods of trending smoothly higher and then grinding slowly but surely sideways before inevitably pushing higher yet. 

So, what is different this time? Why even both analyzing JNK, let alone thinking about it?

For starters, we have gotten at least open acknowledgement from Jay Powell about a regime change towards tapering soon and eventually tightening next year. As dovish as Powell has been since late-2018, the only reason why he would likely even given lip service to a hawkish regime is because he knows behind the scenes just how horrifying inflation, energy scarcity, and supply chain issues are becoming. 

Beyond that, the JNK ETF itself (for junk bonds), is breaking its 200-day moving average on heavy sell volume this week, and so is HYG. 

On the way up during this melt-up since the pandemic lows, bulls used the benign HYG JNK charts are evidence per se of why the bull run was intact, Fed backstopping or not. Thus, it is interesting to see so little attention this week paid to the weakness in these high yield corporates.

If they led higher, we gotta give 'em respect when they break down. 

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