The market is missing the signal from the junk bond market

“The junk-bond default rate rose to 2.6% from 2.1% this year and will likely jump to 4.6% in 2016, breaching the 30-year average of 3.8% for the first time since 2009, said New York University Finance Professor Edward Altman, inventor of the most commonly used default-prediction formula, who has been studying the subject for more than 50 years. Mounting defaults signal an end to the six-year bull run in credit fueled by the Federal Reserve’s long commitment to low interest rates, said Mr. Altman. He said downturns in the junk-bond market often presage stock-price declines and economic slowdowns. Some investors fear just such a reversal as the Fed prepares to raise interest rates this month for the first time since 2006. “In most high-default periods we’ve seen in the past, the rise in default rates precedes a recession,” said Mr. Altman.” Source WSJ: (VIEW LINK) (Google: “The Stock Market Is Missing the Warning From Junk”)

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