The credit markets keep sending the same message. This is not a credit crisis, and it is not close to one. I am not going to apologize for saying so just because it makes a boring headline.
The number that matters most to me, the ICE BofA U.S. High Yield Index option adjusted spread, stood at 271 basis points as of Aug. 13, essentially unchanged from 270 on Aug. 7. That keeps us firmly in Nirvana, comfortably below my 350 basis point Caution threshold and nowhere near the 600 basis points that would mark a real crisis. Stock investors can talk themselves into almost anything for a while. Credit investors eventually have to answer the only question that matters: are we going to get our money back? Right now the junk bond market says yes.
Investment grade backs that up. The ICE BofA AA U.S. Corporate Index spread was 58 basis points as of Aug. 13, up just 1 basis point from 57. I never look at high yield in isolation, and if AA spreads were blowing out while junk sat near 270, I would worry the credit market was flagging something the stock market had missed. It is not. High quality corporate credit remains very calm.
CCC credit is the one line I keep watching.
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The ICE BofA CCC and Lower Index spread rose to 1,024 basis points on Aug. 13 from 1,013 on Aug. 7. That deserves attention, not hysteria. Investors want to be paid well to finance the weakest borrowers, and that is exactly what a functioning credit market should do. Weak companies with poor balance sheets, thin cash flow or deteriorating conditions should not enjoy unlimited cheap capital.
The stress remains concentrated, and that is the important part. CCC sits above 1,000 basis points while broad high yield sits at 271. That is not systemic fear, it is credit discrimination. Real trouble widens spreads everywhere and dries up liquidity for good companies too. None of that is happening. The Chicago Fed National Financial Conditions Index confirms it, registering minus 0.549 for the week ended Aug. 7, slightly looser than minus 0.546 the prior week; negative readings mean conditions are looser than average.
This week's dashboard: broad high yield 271 basis points, essentially unchanged, Nirvana. AA corporate 58 basis points, very strong. CCC and lower 1,024 basis points, a continued warning. NFCI minus 0.549, still loose.
The conclusion is simple.
This is the part that matters.
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