Perfection

Credit Markets Offer Little Upside

The focus of this note is on the US corporate credit market. Spreads are at or near all time tightest levels in history. While in many ways this is entirely justified, the question is can it get better and tighter? If not, credit may provide an asymmetric low-risk, high reward risk off hedge that one can hold for awhile as opposed to equity downside puts where timing is essential.

First, let’s take a look at spreads around the world. We can see that both IG and HY are at 13th percentile levels since 2009, while EU levels are substantially higher relative to their history.

Below is a long term look at spreads, which are very tight and near the tightest ever except for the late 90s. They have barely moved this year, even during the equity correction.