Bank and Credit Report

The credit markets keep sending a clear message. This is not a credit crisis, it is not close to one, and the backdrop for risk assets remains constructive.

The ICE BofA U.S. High Yield Index spread sits at 271 basis points as of Aug. 13, versus 270 on Aug. 7, essentially unchanged and comfortably below my 350 basis point Caution threshold. That keeps us in Nirvana, the number that matters most to me, since credit investors eventually have to answer whether they get their money back, and right now the junk bond market says yes. The ICE BofA AA Corporate Index spread, at 58 basis points, up just 1 from 57 a week earlier, confirms it. I never want to read high yield in isolation, and if junk spreads sat near 270 while AA spreads were blowing out, I would worry.

That is not happening.

The interesting number remains CCC credit, which rose to 1,024 basis points on Aug. 13 from 1,013 a week earlier. That deserves attention, not hysteria, since investors wanting to be paid well to finance the weakest borrowers is exactly what credit markets are supposed to do.

What matters is that the stress stays concentrated. CCC above 1,000 basis points against broad high yield at 271 is credit discrimination, not systemic fear, and real trouble widens spreads across the whole market rather than punishing only the weak.

The Chicago Fed National Financial Conditions Index registered minus 0.549 for the week ended Aug. 7, slightly looser than minus 0.546 the prior week, confirming conditions remain looser than historical averages despite every headline about rates and geopolitics.