Credit spreads have just reached a new low number. Here’s a link to the St. Louis Fed’s report on the high-yield (HY) spread to US Treasury riskless counterparts. Readers are invited to spend a few minutes at the link and to read the definitions.
“ICE BofA US High Yield Index Option-Adjusted Spread,” https://fred.stlouisfed.org/series/BAMLH0A0HYM2
HY is important because it has strong correlation with the stock market. Essentially, the spread is a proxy for stocks because it is the debt-issuing, publicly held American companies that populate the database from which these spreads are derived.
Spread levels are important, as is the direction of change and the rate of change (delta). We combine these elements in order to help with strategic investment decisions.
Right now, the message from the various spreads and their attributes is straightforward. Spreads are saying, “Stay bullish.”
At Cumberland we review a number of spreads daily and circulate the research every morning. Nearly every entry in the daily report is affirming the view.
We remain fully invested in our US Equity ETF portfolios strategy. Our quantitative accounts remain fully invested. Of course, this could change at any time.
David R. Kotok
Chairman of the Board & Chief Investment Officer
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