FYI: Whenever we are looking for positive or negative divergences in the equity market, one area we look to is the high yield credit market. Here, we look to see how spreads on high yield debt relative to treasuries are trending over time. If you are unfamiliar with the term, when we use the term spreads we are simply referring to the difference in yield between a high yield debt security and the yield of a US treasury with a similar maturity. Generally speaking, rising spreads in the high yield market indicate an increase in risk aversion on the part of investors as the higher spread indicates that investors are requiring higher compensation in exchange for taking on the credit risk. Conversely, when spreads are narrowing it indicates that investors are willing to take less in the way of compensation for the particular credit risk.
Regards,
Ted
https://www.bespokepremium.com/think-big-blog/high-yield-spreads-tracking-equity-prices/
