Every morning at Cumberland we circulate a spreadsheet of about 50 separate interest-rate metrics and credit spreads. These go out to the entire firm. They are compiled internally and are used by Cumberland in a proprietary way. Data is sourced from Bloomberg.
Today we want to publicly call out one of these items.
We are watching the spread between the investment-grade corporate bond and the 10-year US Treasury note benchmark. Here’s what we are seeing right now.
Today (December 2, 2021), the spread has widened out to 80 bps. That is confirming a widening trend.
Last week it was 60 bps.
On September 30, 2021, it was 52 bps.
On June 30, 2021, it was 54 bps.
On March 31, 2021, it was 47 bps.
And on December 31, 2020, it was about where it is today: 82 bps.
During the pandemic’s extreme spread-widening surge, that spread hit 285 bps on March 31, 2020, and still stood at 150 bps on June 30, 2020.
For a pre-pandemic reference, on December 31, 2019, that same spread was about where it is today, at 88 basis points.
When spreads are narrowing, stocks and bonds have the wind at their respective backs. When spreads are widening, the opposite is true.
In the stock market, Cumberland is watching the details of spread widening and estimating the impact on the various sectors and broad-based ETFs. In the bond market, Cumberland continues to apply a barbell policy, which is defensive and applied when spreads are widening.
Anyone interested in those methods can email me, and I will refer the email to one of the folks on the bond team or equity-ETF team to discuss the details.
Spread widening is a critical and high-frequency indicator. That is why we watch it daily with about 50 different metrics.
David R. Kotok
Chairman of the Board &Chief Investment Officer
Email | Bio
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