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Signs of Trouble Ahead in Stock Market

Tightening in junk-bond market may indicate a rough road ahead for U.S. equities.

By Lisa Abramowicz | Updated on May 06, 2015

A UBS Group AG analysis revealed that the speculative-grade debt market is starting to show some cracks. Investors are less willing to finance the lowest-rated companies, with borrowers such as Cliffs Natural Resources Inc. and Capital Product Partners LP struggling to attract lenders. Relative yields for the riskiest portion of the market have been increasing, and it’s getting harder to trade the notes, according to UBS’s analysis.

Historically, this sort of backdrop has signaled trouble ahead for stocks. During downturns, junk-bond prices tend to start falling three months ahead of equities, data compiled by the Swiss bank show.

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