Junk Bond Strength is Bullish for Stocks

By Tom McClellan

Junk Bond A-D Line

High-yield bonds, or “junk” bonds, are corporate bonds, but they trade a lot more like the stock market than they do like T-Bonds.  What’s more, they are much more liquidity sensitive than most stocks, and so when liquidity turns bad (or good), it often shows up first in the behavior of junk bonds.

FINRA publishes each day the Advance-Decline (A-D) data for corporate bonds, breaking them down into different categories.  This week’s chart features a cumulative Daily A-D Line for FINRA’s “high yield” category.  I don’t know how they make their determinations of which bonds fit into which groups; that’s up to FINRA, and is not something I can control so I don’t worry about it.  But I really do appreciate them making these data available, because of what a great indicator this A-D Line is.

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