TNX 10-Year Treasury Note Yield and JNK Barclays High-Yield Bond ETF Weekly Charts

Typically, most yields move in the same direction. The TNX chart is the 10-year Treasury note yield and it is dropping like a rock through 2019; lower yields. The junk paper, JNK and HYG, is moving higher in price and lower in yield so all is right with the world. Coronavirus (COVID-19) smacks the US in early 2020 creating a massive disruption in the economy and markets. In comes the Federal Reserve and Congress promising to print money forever and provide stimulus checks to all, respectively, monetary stimulus and fiscal stimulus.

Bond yields drop as the Fed promises to buy every bond in sight forever. The TNX chart moves lower after the Fed says it will print easy money forever in March/April 2020. Lower yields occur. The demand for stocks and high-yield instruments is through the roof once the Fed starts tossing money out of the windows of the Eccles Building. The world is awash in central banker liquidity. JNK soars higher in 2020 reflecting lower yields in sync with Treasuries.

Then August to September last year, the TNX and JNK are in sync with higher yields (orange line). Treasuries are sold off so yield bumps higher off that summertime bottom and JNK drops in the chart reflecting higher yields in the high-yield arena, but that all was short-lived. The TNX continues higher from last summer the yield moving to 0.70% then 0.80%, 0.90%, above 1.00%, and now 1.21%. However, JNK continues higher from the brown circle.

Junk maintains a bid. People are buying JNK and HYG with reckless abandon. Comically, inexperienced traders may not be understanding the price/yield relationship in these instruments. The biggest inflows into the markets about a week ago were VOO, IVV, SLV, QQQ and HYG. You have to wonder if novice investors think that buying HYG and JNK is a save investment because it has the word 'bond'. That's funny. They will lose their shirts. 

There is a disconnect since last September and it may simply be hot stimulus money, and Reddit and Robinhood money, chasing into the ETF's mentioned with reckless abandon, because everyone else is doing it. As the year plays out over the coming months, talking the long-term, the TNX line would be expected to move higher but at a far flatter slope (sideways to sideways higher or sideways with an upward bias) while JNK and HYG would be expected to trail lower with a downward bias for the months forward into year end and this would be in concert with the stock market trailing lower all year long into year end. TNX and JNK would be back in sync during the back half of this year with yields moving sideways to sideways higher.

Strange days. Lots of oddities are appearing in markets since the Federal Reserve and other global central bankers have destroyed all price discovery over the last 12 years. No one actually knows what anything is worth anymore. Isn't that a hoot? It's going to be fun. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here. Consult your financial advisor before making any investment decision.