High Yield Bonds Continue To Warn of Trouble

The daily A-D Line for high yield corporate bonds peaked back on Feb. 19, 2026, and has been in a downtrend since then.  This is bad news for the stock market.

FINRA divides corporate bonds into "investment grade" and "high yield" categories, based on the agency ratings of each bond issuance.  The investment grade bonds tend to trade more like Treasury Bonds, while the high yield bonds trade more like the stock market.  This is important because the high yield bonds are considered low quality investment vehicles. They only tend to do well when liquidity is plentiful, and default risk is seen as minimal.  When liquidity starts to dry up, the stock market and its major averages may continue to sail on higher, but the high yield bonds start to suffer.  This is the warning of liquidity problems, which may come around to bite the stock market.

Not all divergences end up in calamity.  In October and November 2025, there were small divergences between this HY Bond A-D Line and the SP500 which ended up getting rehabilitated.  A divergence is a condition, not a "signal". 

At the moment, we have a still intact divergence from April to June 2026, and this HY Bond A-D Line is still below its 5% Trend.  These bonds are struggling to keep up with the SP500, and not doing well. 

Here is another chart to illustrate why this is important.

For most of the period shown in this chart, the HY Bond A-D Line was acting strong, and confirming the uptrend in the SP500.  The Covid Crash in 2020 was a notable anomaly where there was no warning from this indicator, but I think we can forgive it for not knowing that the government would panic and shut down the economy.  There were some minor dips below the 5% Trend along the way, each of which resolved pretty quickly.

Things changed starting in late 2021.  A big divergence developed versus the SP500, and then by 2022 this HY Bond A-D LIne was in an ugly downtrend, ahead of the bear market which followed in that year for the stock market.  The canary dying in the HY bond market was right about the trouble coming. 

We have a similar message now, but no sign of trouble yet from the SP500.  It is possible that whatever is bothering the HY Bond market could resolve itself.  That could happen.  For now, though, it is saying that there are liquidity problems like ones we have seen before, and this serves as a warning just as we hit the big seasonal weakness due in September.