Another fall in oil prices won't help junk bonds

Junk in focus today

A top story in the Wall Street Journal today focuses on the disconnect between the equity market and junk bonds. It's been especially stark in the fourth quarter as high yield deteriorates while the stock market climbs.

"The junk-bond default rate rose to 2.6% from 2.1% this year and will likely jump to 4.6% in 2016, breaching the 30-year average of 3.8% for the first time since 2009, said New York University Finance Professor Edward Altman, inventor of the most commonly used default-prediction formula," according to the WSJ.

The major catalysts have been commodity companies, especially energy. Oil prices are absolutely wilting today with WTI crude down 3.4%. A fall into the low-$30s would send another shockwave through the heavily-indebted oil sector.

What's interesting to note is that energy isn't the only sector that's struggling. Heavy-industry and pharma have also fallen hard this year.

If there's a crisis in the year ahead, my money says that junk bonds are at the center of it.

The WSJ reports there are $1.3 trillion junk bonds outstanding as of Friday, up from $247 billion in 1998 and $709 billion in 2007, citing data from Bank of America.