Hickey and Walters (Bespoke) submit: High yield spreads measure the difference between the yield on high yield corporate bonds (junk bonds) and US Treasuries. Traditionally, the size of the spread has been inversely correlated to the level of risk aversion among investors. When spreads are low, investors are paying little attention to risk, while high spreads indicate investors are more sensitive to risk.
As we noted last week, spreads in the junk bond market have been widening since the start of June. On June 1st, the spread bottomed at 241 basis points. Since then however, the spread has widened by over 100 basis points to 344, which represents an increase of 43%. Below we highlight the Merrill Lynch High Yield Corporate Bond Spread since 1997 and highlight other spikes in the index.