FJNK - CCC Credit Spreads Update
Summary
- CCC spreads are now significantly higher than the pre-Covid December 31, 2019, level.
- It is important to remember that the spread widening is occurring while both components of this credit spread are rising in actual nominal terms.
- Credit spreads are extremely important, change with high frequency, and function as a market-based leading indicator.
CCC spreads are now significantly higher than the pre-Covid December 31, 2019, level. This widening spread suggests that the Fed's policy of tightening by raising rates while shrinking its balance sheet is starting to tighten financial conditions.
Data: Bloomberg; Cumberland Advisors
It is important to remember that the spread widening is occurring while both components of this credit spread are rising in actual nominal terms. Also note that the energy price rise windfall to bondholders is exhausted. We examine the windfall, and that is why we show two series together, so readers can see the spread with and without the energy price windfall. Credit spreads are extremely important, change with high frequency, and function as a market-based leading indicator. In the present case, these two credit spreads are warning of trouble ahead.
Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.
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CCC Credit Spreads Update