Junk bond rally last week

The last couple of weeks have been sideways for the Dow Jones, hanging in there a little above 8½K. The bulls will take that performance as encouraging after all the negative news announced. Even tax loss selling, of which there must be plenty, has not dragged the averages down. This week will end that selling for the settlement day to be by Dec 31 at the latest.

Dow Jones Industrials --- 2 weeks




The VIX, volatility index, was steady in the first week, but pulled back nicely in the second week as fears eased. However, on Fri it rose from a low of 41 to close at 45. It's still going to be tough to get it below 20 where it belongs in ordinary times.


VIX ---- 2 weeks




MLPs have been trudging along, failing to crack thru the 180 ceiling in a meaningful way. The big news was Kinder Morgan (KMP) raising $900M while Constellation Energy Partners (CEG) sank to a new low of 2½ yielding 20% AFTER announcing a large cut in the distribution for the next quarter. A few other MLPs have low single digit handles, indicating there will be more cuts by the weak. Additional selling of the weak could bleed thru to the rest of the industry.


Alerian MLP Index ---- 2 weeks




REITs while going sideways, had a nice move up last week from a very low level. Double digit yields are attracting nibblers. For the adventurous, the most depressed had the largest rebounds off their lows under 5 or 10.

Dow Jones REIT Index --- 2 weeks




For me the most interesting story was in junk bonds. An ETF below shows a big pop up last week. Astronomical yields, easily 2000 basis points above the 10 year Treasury rate of 2.1%, finally attracted buyers.


Lehman High Yield Bond ETF -- 2 weeks




SeekingAlpha just published my latest article discussing high yields on REITs & junk bonds. Risk takers might be interested in them now, trying to catch even a modest rebound. The growth for the JNK ETF does not show the gains experienced by other junk bond funds. Gains last week of 25+% (off VERY depressed levels) were common. However, even at higher prices, many of these funds still have 20+% yields.

High Yields with REITs and Junk Bond Funds