phillips49

Investment Grade Corporate Bond ETF Breaks Down

I don't think I would make to much of this. LQD is about where it was in 2007 when the market was much higher. It sold off during the great liquidation. It has now recovered it's basic value and sells just for the dividend. The great liquidation provided a great opportunity to buy this ETF at discount. That was a one time good deal.

Why I'm Lowering My Bond Exposure

You'll never go broke taking profit, but I'll hold a while longer myself. The ETF throws off 10% cash every month that I've used to invest in stocks. The dividend held steady during the financial crisis. The NAV has risen some 24% since the first of the year, which indicates that investors have some confidence in the underlying bonds. HYG currently sells at 1% premium to NAV which is not over priced. The equites market is over bought at this point and I don't see a good place to park the cash. I'm thinking that stocks are more of a risk at this time than HYG.

Stocks / Bonds Intermarket Considerations

Old Trader,

As I understand the author, rising below grade bond prices as related to investment grade bond prices, indicate improving economic conditions. Comparing the price divergence of LQD to JNK since the 1st of March, shows rising below investment grade bond prices.
Not being bearish, to me doesn't necessarily mean bullish either. To me it means bearish is increasingly risky. Cautiously optimistic would be more appropriate.

Stocks / Bonds Intermarket Considerations

Thanks,

Good article. The last 30 days do show the divergence you speak of between investment grade and below investment grade bond prices (using JNK and LQD as proxies) and is also coincident with upward movement of stock prices. This would indicate improving economic conditions. Bearish is wrong place to be.

Don