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Credit spreads do not foretell any problems for the US stock market yet


Schedule S&P 500 (white, right price scale) and the yield spread between the index of high-yield junk bonds rated “CCC” and Treasuries (blue, left scale, in%). Source: Bloomberg

Credit spreads do not yet foreshadow any problems for the US stock market, writes Ian McMillan, a technical analyst at Client First Tax & Wealth Advisors ($ 100 million under management – approx. The expert plotted the yield differential between the index of high-yield junk bonds rated CCC and Treasuries, then turned it over and superimposed it on the S&P 500 chart.

It turned out that since the beginning of 2020, these instruments have shown a strong correlation. The Bloomberg Barclays Caa US High Yield Index rallied this week, pushing the yield spread between its components and Treasuries to its lowest level since July 2018.

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The widening of this spread will be a worrying sign for the stock market, McMillan warns.

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