The High-Yield Bond / Treasury Bond Ratio: A Barometer of Economic Health

Charts courtesy of www.StockCharts.com

When the RED line trades ABOVE the BLUE line, we are BULLISH on High-Yield Bonds and the U.S. economy.

• We SELL Treasury Bonds and BUY High-Yield Bonds.
  

When the RED line trades BELOW the BLUE  line, we are BEARISH on High-Yield Bonds and the U.S. economy, and we are BULLISH on Treasury Bonds.

• We BUY Treasury Bonds and SELL High-Yield Bonds.

Note that The High-Yield Bond / Treasury Bond Ratio forewarned of an economic contraction in the summer of 2007, ahead of the worst recession since the Great Depression of the 1930s (the RED line traded BELOW the BLUE line). 

And it didn't turn up until the coast was clear for the U.S. economy and the U.S. stock market in the late spring of 2009.