PCF - High Yield Spreads Come Unhinged
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