FYI: As equity prices have cratered in the last several trading days, one area of the market that has predictably come under selling pressure is high yield credit. The chart below shows the 50-day rate of change in spreads on high yield bonds relative to treasuries. When spreads are rising, it indicates that investors are becoming more risk-averse and demanding higher payment in the form of higher interest rates on riskier credit. As risk aversion fades, the opposite is the case as investors demand less in the form of interest payments causing spreads to decline.
A look at how credit spreads have changed over the course of the last year certainly supports the meltdown we have seen in equity prices. Over the last 50 trading days, spreads on high yield debt have increased by 168 basis points (bps), which is a seismic shift relative to the range of the last 12 months. Prior to this recent move, spreads never widened by more than 50 bps over the prior year.
Regards,
Ted
https://www.bespokepremium.com/think-big-blog/high-yield-spreads-come-unhinged/
