In our April 28th Global Technicals, we had highlighted the potential for a double top in high yield corporate bonds. In yesterday’s price action, the double top potential was realised as the ETF plunged through its previous trough low.
This breakout signals that a collapse in the junk bonds is in the horizon. In other words the problems are mounting for the neediest borrowers and they are going to find it extremely hard to find willing lenders. While this clearly means risk aversion, there are other questions that are popping up. Could this mean there could be an increase in commercial delinquency? Or A double dip recession? Well, one has to wait and watch.