As @RyanDetrick pointed out, credit markets have yet to signal any type of impending weakness for equities. This is good news for investors, due to the fact that HY spreads turning up is typically seen as a leading indicator for said volatility. pic.twitter.com/O3An6ZCgwd
— Ian McMillan, CMT (@the_chart_life) March 30, 2021
Today’s Chart of the Day was shared on Twitter by Ian McMillan (@the_chart_life). Last week, a multibillion-dollar fund was forced to liquidate its over-leveraged portfolio, causing a sharp sell-off in a handful of stocks. Some seem concerned that this blow-up could pose a systemic risk to the broader market, similar to what happened with Long-Term Captial Management in ’98. However, if this truly was a systemic risk, we likely would’ve seen the credit markets react by now, and we’re not. The chart shows the CCC high-yield bond spread in blue, along with the S&P 500 in purple. As Ian points out, this high yield spread often turns higher before any major volatility in stocks. But it continues to trend lower, giving stocks the green-light for now?