If you want to understand overall credit spreads you have to have both a macro and a micro view. The macro view looks at the business cycle and the chance of default for risky assets based on economic growth. The micro view looks at the credit supply coming to market, the demand for loanable funds at any time, and the structure of deals. The macro focuses on credit risk expectations and the micro will be more centered on the flow of funds. A macro-micro framework helps focus our interest in actual and perceived credit dislocations.
We believe that macro credit risk should be repriced higher given higher equity and bond volatility and a potential slowdown in earnings later this year, but the current spike is more related to structural issues. However, the spread widening may be unrelated to bank risk. Financial conditions have tightened, but the absolute level is not suggestive of high spreads.