Bond Bubble? H0A0, HYG, JNK, PHK, TLT, LQD, Baa/S&P Spread, OAS (Chart Action, Part 2)

This post takes off from part 1Bonds in Bubble Mode! Spreads to S&P, Treasuries Narrowing (JPM's Tom Lee, CDR's Tim Backshall and Wharton's Siegel). Below I charted out TLT, LQD, JNK, HYG, PHK, the Merrill Lynch US High Yield Master II Index, OAS (option adjusted spread to Treasuries), Baa-S&P 500 earnings yield spread and the Baa-10Year Treasury yield spread.

Bond ETFs look ripe for a correction, especially when looking at the yearly charts of PHK and LQD. PHK (Pimco High Yield) retraced the entire 2008 crash and LQD is testing the 2003 highs! In the immediate term, watch to see how HYG and JNK break their symmetrical triangles and if the 20 week moving average crosses the 50 week moving average.

Check out how the Baa-to-S&P 500 earnings yield spread tightened dramatically, testing levels not seen since early 2007 when credit risk was mispriced. Something has to give again, look at the historical range as a potential guide. To widen the spread, either bonds sell off, SPX earnings miss big or SPX rallies hard from here. I also threw up a chart of the Baa-10 Year Treasury yield spread. It looks elevated compared to the 80s and 90s range (of course we're dealing with 2.6% on the 10-Year). In the end, you never know how long this bond trade will last, but I think a big "retracement" trade is coming on the short side. Here's what I charted out.

H0A0: Merrill Lynch US High Yield Master II Index, Total Return, OAS (Option Adjusted Spread)
HYG: iShares iBoxx High Yield Corporate Bond ETF
JNK: SPDR Lehman High Yield Corporate Bond ETF
PHK: Pimco High Income Fund
LQD: iShares iBoxx Investment Grade Corporate Bond ETF
TLT: iShares Barclays 20+ Treasury Bond ETF
Baa-Treasury Yield Spread: Baa Corporate bond yields (one notch above junk) - Treasury yields
Baa-S&P Earnings Yield: Baa Corporate Bond yield (one notch above junk) - S&P earnings yield

H0A0 - US High Yield Master II - Courtesy of

H0A0 - US High Yield Master II, Option Adjusted Spread - Courtesy of

Baa-S&P 500 Earnings Yield Spread - Courtesy of

Baa-10-Yr Treasury - Courtesy of

PHK - Pimco High Income Fund (retraced the crash) -

LQD approaching 2003 resistance, wow

TLT, watch 20+ Treasuries ETF, hasn't broken '08 panic highs yet

HYG, high yield bond ETF at near term inflection point, watch 20/50WMA

JNK (SPDR), clear symmetrical triangle inflection point, watch 20/50WMA