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One of the most striking characteristics of the rally over the last two years has been the divergences between the high yield bond market and the S&P 500.

During the early portion of the rally the high yield market lagged substantially. To me, it was one of many signs that said credit markets were still the more attractive value; however, as the rally progressed, the high yield market matched the performance of equities. The divergence became apparent again following the flash crash when high yield bonds failed to match the fear that equity markets were displaying.

In recent months, equities have surged ahead for the first time since the rally began in March 2009. While there is little to feel bearish about right now, I wonder if this isn’t a sign that a more cautious stance on the markets isn’t warranted?

click to enlarge

Source: Is the High Yield Market Sending a Warning?