The strength in the move in credit spreads is thought provokingThe strength of the move in credit spreads since the week of Jan 20th is really unusual. Even during Covid when spreads really widened in a short amount of time the "strength" of the move doesn't compare to what we are witnessing right now with this move.
One comparable timeframe Is June 2007-July
About ICE BofA US High Yield Index Effective Yield
Spike in Credit Spreads continues...As I wrote on March 4th after February monthly closing...the RSI on credit spreads made a higher high with Feb closing which indicates a change from a down trend in credit spreads to an uptrend; which is not good for risk assets.
Now that March has closed; you will see yet another spike in the RSI
Caution is now warranted The RSI on credit spreads is changing course from being in a downtrend to starting an uptrend. With February's monthly closing we now have a higher high. Risk assets will not be the place to hide out; especially if you are leveraged long.
Here is how the SPX has performed after changing course.
Using Credit Spread chart for bull/bear market sentiment changesIt's known that credit spreads under 4 indicate a low risk on type market. (The black dotted line on the above chart indicates 4 so you can clearly see above/below)
You can then use the RSI index to gauge whether or not the market might see a "change" in sentiment. A declining RSI means bull mode
Macro perspective on SPXFirst pane is SPX, no explanation needed here.
Second pane is ICE BofA US High Yield Index Effective Yield (Performance of US dollar denominated below investment grade rated corporate debt publicly issued in the US domestic market). Usually when it hits numbers above 9+ market is oversold and 10-we
Corporate Credit Conditions: Part 4In part 4 we look at the all in yield of investment grade (IG) and high grade (HY) credit, and why, despite OAS spreads resting at long term median, there still may be considerable investment value in the all-in-yields of short to intermediate maturity IG notes and ETFs. Understand, this discussion
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