High yield market spreads has been moving to the highest levels in three years. Investors are fleeing the sector especially for names in the energy and commodity sectors. As important, there has been a spike in volatility that suggests the risks from trading are much higher. We looked beyond volatility and measured the number of days in a given month (22 days) where the absolute movement in the index was greater than 2%. The disruptions become very clear.
If there is an economic shock, there will be a spread disruption. If there is a monetary shock or uncertainty like what we have seen recently, there will also be a spread disruption. The high yield market is starting to calm, but the next Fed meeting may seem another spike. More likely this will happen in December. Overall, we believe that credit spreads will rise with any further equity market decline.
If there is an economic shock, there will be a spread disruption. If there is a monetary shock or uncertainty like what we have seen recently, there will also be a spread disruption. The high yield market is starting to calm, but the next Fed meeting may seem another spike. More likely this will happen in December. Overall, we believe that credit spreads will rise with any further equity market decline.
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