Corporate credit markets, long the asset class of choice for people looking for clean insights into the economy, have turned as murky as everything else in 2022.
Rather than serve as a foil to equities’ emotionalism, bond spreads this year have bounced around with virtually the same fickleness, widening at stock troughs and narrowing at peaks, a note from DataTrek Research’s Nicholas Colas highlights. Most recently, spreads on investment-grade bonds reached their ceiling for the year at roughly 165 basis points on Oct. 12, while the S&P 500 touched 2022’s low just a day later. Similar episodes occurred in late June into July, March and early January.
While it’s true that in times of heightened volatility -- such as when the Federal Reserve unleashes a series of uber-aggressive rate hikes -- correlations grow tighter, credit spreads are often regarded as a read on corporate America’s health and access to capital, and thus, are viewed as a harbinger of stress for other asset classes. But few reliable signals have been apparent in 2022.
“Which is the smart money, is it equities, is it corporate fixed-income, is it Treasuries, what is it? The upshot is it’s there’s no clear answer,” Colas said. “I went through the math of the individual turns in the market between spreads and the S&P. Sometimes they lead by a day or two, sometimes they lag by a week or two, all I can say for sure is they’ve been very coincident in general in turns all this year.”
