2018-03-30

Regime Change 2018: Credit Spreads

One of the charts I'm watching for a trend change (or not). BofA US Master High Yield Master II Option-Adjusted Spread
The ICE BofAML Option-Adjusted Spreads (OASs) are the calculated spreads between a computed OAS index of all bonds in a given rating category and a spot Treasury curve. An OAS index is constructed using each constituent bond’s OAS, weighted by market capitalization. The ICE BofAML High Yield Master II OAS uses an index of bonds that are below investment grade (those rated BB or below).

A breakout from this channel would not signal a bear market immediately (it would have to nearly double for that), but it would mark a shift in the credit risk trend. The prior two bottoms were in 2011 and 2014, both came ahead of a sharp corrections in equities and debt.

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