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The Wall Street Journal


Stocks Finally Noticing the Red Flag in Junk Bonds

MoneyBeat by Paul Vigna

The junk-bond market has been flashing a warning sign about conditions in the capital markets for some time. The stock market is finally listening, it seems.

Now, junk bond have been squawking for some time. It’s something we wrote about over the weekend. But as the long risk/short safety market bets continue to unwind, and the pain splays out across the capital markets, the red flag jutting out of the high-yield market is flapping energetically.

The story about Third Avenue Management, which halted investor withdrawals while it tries to liquidate a fund that invested in junk bonds,  only emphasizes a situation that has existed for some time. “For weeks we have been pointing out widening corporate bond spreads,” Asbury Research’s John Kosar wrote, “and saying that as long as this widening trend continued, the U.S. stock market was going to have a difficult time setting and maintaining new highs.”

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