Last Friday, Steve asked me to send over the most bearish charts from my chartbook as a good exercise in playing devil’s advocate internally with the team.
After today’s market action, this one stands out even more.
Credit spreads are one of the most reliable indicators of risk appetite. If there’s stress in the market, it’ll show up in credit first.
When investors feel good, they buy high-yield debt. When risk appetite fades, they run to safety, favoring treasuries.
Historically, HYG/IEI has led major market moves, bottoming and topping ahead of stocks in past cycles.
Right now, it’s flirting with a failed breakout, struggling to hold above a key level of former highs.
If spreads keep widening, the bond market could be flashing a warning we’d be wise to heed.
This is one of the most bearish charts out there for me.
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