Unyielding Yield Play: Bond Pricing as Sentiment Gauge

One rule that's held consistently in the recent market is that reaching for yield has cost investors in performance. I took a look at the FINRA data and the numbers were eye-opening. Here are the advance/decline numbers this past week for bonds in their investment grade index and bonds in their high-yield index (in parentheses):

Tuesday, Nov. 18th: 1611/1232 (347/639)
Monday, Nov. 17th: 1374/1422 (317/650)
Friday, Nov. 14th: 1540/1140 (401/555)
Thursday, Nov. 13th: 1379/1471 (360/631)
Wednesday, Nov. 12th: 1607/1390 (334/728)

As we can see, advancing bonds and decliners have been pretty even for the last five trading days among the investment grade issues. Decliners have been ahead of advancers by about 2:1 among the high-yield bonds, however.

Significantly, we had 266 out of 3211 investment grade bonds traded on Tuesday make fresh 52-week lows, less than 10% of the group. Among high-yield bonds, 285 of the 1118 bonds traded made new annual lows, more than 25% of the group. Bond pricing is an excellent sentiment gauge, when you consider that pricing is reflecting perceived odds of default.