With downside volatility picking up this week, some of you might be wondering if we are on the cusp of a significant market downturn, or is this just another dip that buyers will eventually step into?
It’s worth remembering that every big move starts small, but not every small move turns into something bigger.
That’s where credit spreads come into play—they act as a reliable barometer of market health, offering insights into investor sentiment and risk appetite.
One effective way to measure them is by analyzing the ratio of the High-Yield Bond ETF $HYG to the Treasury Bond ETF $IEI.
When investors are willing to take on more risk, this ratio typically trends higher. On the other hand, when caution takes over and safety becomes the priority, credit spreads widen, and this ratio declines.
