Profile image
By silveristhenew (Reporter)
Contributor profile | More stories
Story Views

Last Hour:
Last 24 Hours:

“It Will Be Tough For High Yield Spreads To Tighten From Here”

Friday, October 21, 2016 11:55
% of readers think this story is Fact. Add your two cents.

Submitted by Eric Bush via Gavekal Capital blog,

High yield investors have had a much different experience in 2016 than they did in 2015 (fortunately for them). The high yield spread over 10-year treasury yield blew out from 375 bps in June 2015 to 844 bps in February 2016. After peaking in February, the roller coaster turned back down and spreads today stand at just 426 bps, nearly retracing the entire move in 2015. Given this powerful move, spreads have compressed to a point where history suggests we may be at the end of this narrowing cycle.

In the second chart below, we show the 9-month difference in the high yield spread over 10-year treasury yield. The light blue and red lines signify a 1-standard deviation from the mean going back 20 years.

As you can see outside of a crisis period (i.e. 2008-2009), high yield spreads tend to widen out against US treasuries when this series reaches a 1-standard deviation from the mean. We are currently right at that level which is why we believe it will be tougher for high yield spreads to narrow further from here.

Said differently, it seems to us that high yield bonds are overbought at the moment.


We encourage you to Share our Reports, Analyses, Breaking News and Videos. Simply Click your Favorite Social Media Button and Share.

Report abuse


Your Comments
Question   Razz  Sad   Evil  Exclaim  Smile  Redface  Biggrin  Surprised  Eek   Confused   Cool  LOL   Mad   Twisted  Rolleyes   Wink  Idea  Arrow  Neutral  Cry   Mr. Green

Top Stories
Recent Stories



Top Global


Top Alternative




Email this story
Email this story

If you really want to ban this commenter, please write down the reason:

If you really want to disable all recommended stories, click on OK button. After that, you will be redirect to your options page.