Junk bond ETFs have been extremely popular this year as fixed-income investors take on more risk in an effort to juice yields.

High-yield bond ETFs are a decent leading indicator for the U.S. stock market and many technical analysts keep a close eye on the sector to gauge risk appetites and the health of credit markets.

Now, the iShares iBoxx High Yield Corporate Bond (NYSEArca: HYG) and SPDR Barclays High Yield Bond (NYSEArca: JNK) are both trying to break out to their highest level since the 2008 financial crisis. [High-Yield Bond ETF Implied Volatility Skyrockets]

The stock rally during the past two weeks has lifted HYG back to its September and October highs, triggering talk of a so-called triple top for the high-yield ETF, says technical analyst Andrew Thrasher.

He says the junk bond fund is showing signs of “exhaustion” as it tries to break out, according to momentum indicators.

“Each attempt to make a new high appears to be accompanied by fewer and fewer buyers,” Thrasher wrote at his blog.

“We can also see that each rally was done on declining volume. When traders take a security to new highs or levels of resistance, they often look for heavy volume to be present,” he added. “Large volume tells us that there is a lot of demand for shares, which we don’t seem to be seeing in HYG. Instead, each rally attempt has been on dying volume, giving traders less confidence that resistance can be broken.”

Also, recent ETF flows indicate some investors are shifting away from high-yield bonds and into higher-quality corporate debt funds such as iShares iBoxx Investment Grade Corporate Bond (NYSEArca: LQD). [Corporate Bond ETFs: Investors Favoring Investment-Grade Over Junk]

In November, options traders have pushed bearish short bets against high-yield ETFs to all-time highs. [High-Yield ETFs Suffer Outflows Amid Record Bearish Bets]

“With that said, there is still some hope for HYG … this market is currently swaying to the words of Congress,” Thrasher concluded. “If we get a debt deal then there’s a definite possibility that the $93 level can be taken out and bulls will maintain in control.”

HYG has posted a total return of 10% year to date, according to Morningstar. The ETF has a 12-month yield of 6.8%, according to manager BlackRock (NYSE: BLK).

iShares iBoxx High Yield Corporate Bond

Chart source: www.athrasher.com

Full disclosure: Tom Lydon’s clients own HYG, JNK and LQD.

The opinions and forecasts expressed herein are solely those of John Spence, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

Do NOT follow this link or you will be banned from the site!