Are Junk Bonds a Momentum Market? You Bet

Momentum is perhaps the most basic of trading techniques, but it wouldn't seem to apply to a segment such as high-yield bonds. In tech or pharma, a stock price theoretically can continue rising forever, so it makes some sense that good news about a stock can keep compounding on itself, leading to ever-higher prices. But that doesn't fit the bond market.

When bond prices go up, the yield goes down. Hence, the bond is demonstrably less attractive at the higher price. In addition, the price of the bond can't keep rising forever. Even government bonds have struggled to get below 0% yield. Certainly credit-risky bonds have a logical limit as to how low the yield can get. Indeed, it would seem more like junk bonds should be a mean-reverting market -- that is, a market where periods of above-average performance are followed by periods of below-average results....836 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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