The JNK high-yield ETF looks the best of our three charts today, already having transcended the downward sloping trend line off the 2014 peak.
The HYG is sitting just above resistance at the downward sloping trendline off the 2014 top as well. Like JNK it’s not yet a convincing breakout.
The short-term high-yield ETF (SHYG) is trying to trade above its 200-week moving average, but like the longer-duration high-yield ETF’s HYG and JNK, it hasn’t yet broken out convincingly.
Summary / conclusion: When the FOMC announces their decision on July 31, 2019 at 1 PM central time, I would expect the SP 500 and the major equity indices to respond positively to the 25 basis point reduction, unless the US economy is already in a recession, which would be hard to believe given jobless claims, a 3.6% – 3.8% unemployment rate, and a US consumer as strong as they are at present.
What i’ll be paying attention to is to see if these high-yield ETF’s can solidly break above these various resistance levels and sustain the moves even though all three are overbought.
Liquidity is good for credit typically, so if the high-yield asset class sells off tomorrow and the days following the FOMC announcement, it will be an important sign.
The interesting action might be in the short-end of the Treasury curve and the Treasury curve itself.
Looking at the YTD returns for corporate high-grade credit and corporate high-yield credit, YTD returns are almost identical (both just over 10% as of last Friday) thus that tells me corporate high-grade has benefited greatly from falling interest rates (i.e. longer duration) as much as the credit spreads.
I wonder if we don’t see that reverse a little bit starting Wednesday afternoon and high-yield start to show better relative performance than corporate high-grade.
Just thinking out loud.
Thanks for reading.