The BofA US High Yield Option-Adjusted Spread is at a 17-year low, a level not seen since before the GFC market crash.
Here’s the chart:
(right-click and open image in new tab to zoom in)
Let's break down what it shows:
The blue line shows the price of the S&P 500 index.
The black line represents the BofA US High Yield Option Adjusted Spread.
The Takeaway: A rise in high-yield spreads indicates increasing volatility and stress, reflecting a Risk-Off market behavior. Conversely, a decline in high-yield spreads suggests that investors are confident and actively seeking risk, indicating a Risk-On market behavior.
Currently, We are at 17-year lows in this spread. If the bond market isn't experiencing stress, then why should we be concerned? After all, the bond market is one of the largest in the world. If there were real stress in the market, it would likely be reflected in credit.
At this moment, credit spreads are sending a clear message: Relax and play more golf.
Therefore, act accordingly.
Of course, this could change. However, being at 17-year lows does not suggest bear market behavior.
