High yield debt outperformed its prediction surging higher instead of going sideways. That was awesome and really helped to lift markets but unfortunately the predicted path is down from here.

High yield debt prediction chart

I think at best we get a short move sideways and then we get a much larger drop in high yield debt that doesn’t end until sometime in November.

Investors pulled $616 million form high yield bond funds in the week ending September 13, 2017. Over the same period, they added $1.7 billion to emerging-market funds. Toys ‘R’ Us stiffed high yield bond holders when they filed for bankruptcy last week. More than a dozen retailers have recently filed for bankruptcy. You can read more about the state of the high yield bonds market on Bloomberg here.

With so many bankruptcies happening in retail, high yield bonds are increasingly being viewed as not worth the risk. Many bond traders are buying emerging market debt because yields are good and they are considered less risky than US high yield debt.