While the purpose of the Fed's Operation Twist program is to lower long
term interest rates, the reality is that the only long-term rates that
are falling are Treasury rates. Long term bonds are still in an
uptrend. and although Treasury yields are falling, spreads on high
yield debt are rising at just as fast, if not at a faster rate.
The high yields are sending a message that risk to the economy and the stock market remains above normal, as the high yield funds are now breaking below their early August lows, (JNK with HYG on the verge). Ironically, spreads had been essentially range bound until Operation Twist was formally announced; it was then that yields on high yield debt actually broke out of their recent range and made new highs. This is especially bearish when you consider we are entering the strongest performing time of the year for bonds.
The high yields are sending a message that risk to the economy and the stock market remains above normal, as the high yield funds are now breaking below their early August lows, (JNK with HYG on the verge). Ironically, spreads had been essentially range bound until Operation Twist was formally announced; it was then that yields on high yield debt actually broke out of their recent range and made new highs. This is especially bearish when you consider we are entering the strongest performing time of the year for bonds.
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