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Lisa Abramowicz

Junk Bonds Give Stocks Green Light

A leading indicator for equities shows no signs of slowing.

Everyone loves to hate the latest rally in U.S. stocks. But junk bonds, which are often thought of as a leading indicator for stocks, are suggesting that the despised rally can continue easily.

While the Standard & Poor's 500 has climbed to records recently, dollar-denominated high-yield bonds have rallied even more. You can see this based on monthly returns:

Or check out how much cash the securities are paying holders regularly. While the earnings yield on the S&P 500 has shrunk as stock prices have climbed, yields on junk bonds have plunged even more.