“It’s generally thought that between the two asset classes, junk bonds lead stocks, and if that’s the case, the equity market is due for some catch up on the upside,” analysts at Bespoke Investment Group said in a note.
Supporting the junk bond market’s recent run, the rebound in oil prices could have bolstered the outlook on highly indebted energy companies or diminished credit risk among oil and gas producers. The plunge in crude oil prices have weighed on speculative-grade debt in prior years as investors dumped the asset on concerns of widespread defaults.
“Prior periods of weakness in HYG over the last two years have led to similarly meaty declines in the [S&P 500],” Frank Cappelleri, a technical analyst at brokerage Instinet, told the WSJ. “That [weakness in junk]has yet to happen, hence, the equity market’s continued buoyancy thus far.”
For more information on the speculative grade debt market, visit our junk bonds category.
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