The Spread Thread

Your chart is just showing that treasury yields have risen over the past month. High yield credit spreads are still at very tight levels.

I disagree on your leverage point. Below is IG leverage. Off the peak but still high. Lots of leverage in loans/private credit, why we are seeing defaults/distressed exchanges remain sticky. And this is all with solid earnings. Wait until EBITDA turns in a recession.

One more old one (not updated). Usually the UE rate doesn’t just sit at low levels. In 1995 the UE rate was 5% and (in hindsight) able to keep declining for another 5 years. Probably a different setup today.

Lastly, I put out this chart a while back with price action around the first cut, that may be relevant.

In other words, how much upside do you have if its 1995, vs how much downside if it is the 2001 playbook.

Not the tightest ever. But yes, tight. Either way. Credit isn’t the forward looking indicator people think. Spreads were at all-time tights in mid-2007. Also, note, unlike stocks, credit has not gotten back to the tights hit early this year. A bit of a divergence Left chart MS

I’m just pointing out Atlanta Fed is an outlier this quarter given how often it gets sent out on this site. I guess we’ll see. MS has the biggest hit to consumption in 4q and 1q26

Atlanta Fed is an outlier this quarter. GS and MS are both at around 1.5% with domestic final sales at around 0.6%. Below explains the difference with Atlanta Fed.

I would phrase it this way: -Financial credit is healthy -Non-fin IG leverage is high (driving by years of low rates incentivizing debt-funded buybacks, etc.) but int coverage is fine -HY is fine -Loans and esp private credit will drive defaults next cycle (chart IG non-fin)

And my point that credit risk is still very real - plenty of defaults/distressed exchanges, etc... over the past few years. And that is without a recession, when defaults tend to hit hardest.