While the CBOE Volatility Index (or VIX) illustrated below clearly shows that equity volatility spiked earlier this year, high yield credit spreads held relatively steady and remain tight in a historical context. The fact that they did not widen to any meaningful degree even as equity volatility spiked is noteworthy.
Although corporate sector borrowing has increased in recent years, investors do not appear to be concerned with corporate profitability or default risk to a meaningful degree. Against the backdrop of a still positive economic outlook, tight credit spreads and positive credit market conditions provide further evidence that the recent equity pullback was more likely a correction than it was a sign of concern about a deterioration in economic fundamentals, declining credit market conditions, or the start of a prolonged bear market.
Plante Moran Financial Advisors (PMFA) publishes this update to convey general information about market conditions and not for the purpose of providing investment advice. You should consult a representative from PMFA for investment advice regarding your own situation. The information provided in this update is based on information believed to be reliable at the time it was issued. Any analysis non-factual in nature constitutes only current opinions, which are subject to change.