High-yield spread (junk bonds)
Credit of risky companies. Credit.
Updated
What is it?
How much more interest riskier companies pay than the government to borrow money.
Option-adjusted spread (OAS) on high-yield bonds. The #1 gauge of corporate credit risk and liquidity stress.
Why does it matter?
If it rises sharply, investors fear those companies could go bust. It is one of the first signs that credit is drying up.
What has happened in other crises?
In 2008 it exceeded 20% and in March 2020 it reached 10.9%. Levels of 5% or more have accompanied waves of corporate defaults.
When should it be a concern?
It is a concern when risky companies are finding it harder to borrow. Crisis Monitor turns each reading into a score from 0 to 100 using these bands:
| Situation | Value | What does it mean? |
|---|---|---|
| Calm | ≤ 3.00% | Score 0: no stress |
| Watch | ≥ 4.20% | Score 33: starts to draw attention |
| Stress | ≥ 5.00% | Score 66: risk zone |
| Extreme | ≥ 8.00% | Score 100: like in the worst crises |
Between one band and the next, the score is interpolated.
Why is there no data for past crises?
Since 2023, FRED only allows the last 3 years of this series to be downloaded because of its provider’s (ICE) license, so we cannot show how it behaved in past crises with our own data. For past crises, the Baa spread plays a similar role. See the Baa spread.
How does Crisis Monitor use it?
- Area: Credit and financial conditions (30% of the index). Whether companies and banks find it hard to borrow. When credit dries up, the trouble starts.
- When does it move? Usually warns early.
- Data frequency: daily.
- Quick alarm: Yes, it is one of the 5 ignition points.
The index combines 17 indicators. See the methodology to learn how it is calculated.
Data source
FRED, Federal Reserve Bank of St. Louis (BAMLH0A0HYM2). Data may arrive late and does not constitute financial advice.
Frequently asked questions
What is the high-yield spread?
It is the extra interest paid by companies with weaker credit ratings (so-called junk bonds) compared with US Treasury bonds. It measures how much default risk the market perceives.
Why is it watched before a crisis?
Because credit investors tend to spot problems before the stock market does. When the spread widens quickly, companies struggle to refinance their debt, and that ends in layoffs and defaults.
What level is worrying?
Crisis Monitor starts watching it above 4.2% and considers it a risk zone from 5%. In the worst crises it has far exceeded 8%.