Credit Spreads & Corporate Bond Data: High Yield, IG & Default Risk

Why Credit Spreads Matter

Credit spreads—the extra yield investors demand over Treasuries—are essential for:

• Credit cycle analysis
• Recession prediction
• Equity market signals
• Corporate financing conditions
• Risk appetite measurement

Understanding Credit Spreads

What Is a Credit Spread?

The difference between a corporate bond yield and a "risk-free" Treasury yield of similar maturity.

Spread = Corporate Yield - Treasury Yield

Components:

• Default risk premium
• Liquidity premium
• Tax considerations
• Market risk premium

Option-Adjusted Spread (OAS)

Spread adjusted for embedded optionality (callable bonds).

More accurate for comparing bonds with different structures.

Credit Market Segments

Investment Grade (IG)

Ratings: AAA, AA, A, BBB (S&P/Fitch), Aaa-Baa (Moody's)

Key indices:

• Bloomberg US Corporate Bond Index
• ICE BofA US Corporate Index
• iShares LQD (popular ETF)

FRED Series:

• BAMLC0A0CM (IG OAS)
• IQ Score: 96

Typical spread range: 80-200bp over Treasuries

High Yield (HY)

Ratings: BB, B, CCC, CC, C, D (below investment grade, "junk")

Key indices:

• Bloomberg US High Yield Index
• ICE BofA US High Yield Index
• iShares HYG (popular ETF)

FRED Series:

• BAMLH0A0HYM2 (HY OAS)
• IQ Score: 95

Typical spread range: 300-600bp (calm) to 1000bp+ (stress)

BBB vs BB (Crossover)

The boundary between IG and HY is critical.

• "Fallen angels": IG downgraded to HY
• Large BBB market = systemic risk in downturn

Key Spread Series

ICE BofA OAS Data (via FRED)

Sector Spreads

Energy, financials, telecom, consumer—each trades differently.

Credit Cycle Indicators

Spread Levels

Spread Direction

Often more important than level:

• Rapid widening = risk-off, deleveraging
• Gradual tightening = improving conditions

Credit vs Equity

Credit often leads equities:

• Spreads widen before stocks fall
• Credit markets "know" first
• Smart money watches credit

Default Rate Data

Moody's Default Rates

IQ Score: 94

Historical corporate default rates by rating:

• Trailing 12-month default rate
• Cumulative default rates
• Sector breakdown

S&P Global Default Studies

Similar data with different methodology.

Current Default Environment

• Normal HY default rate: 2-3%/year
• Recession default rate: 10-15%
• COVID peak: ~6% (cushioned by policy)

Credit Cycle Timing

Early Cycle

• Spreads wide from prior stress
• Defaults peaking/falling
• Aggressive Fed easing
• Strategy: Buy credit

Mid Cycle

• Spreads compress
• Defaults low
• Economy growing
• Strategy: Hold credit

Late Cycle

• Spreads very tight
• Leverage building
• Fed hiking
• Strategy: Reduce credit risk

Recession

• Spreads blow out
• Defaults spike
• Forced selling
• Strategy: Wait, then buy distressed

Related Indicators

VIX-Spread Relationship

Credit spreads and VIX are correlated.

When they diverge, one may be mispriced.

CDX Indices

Credit default swap indices:

• CDX IG: Investment grade CDS
• CDX HY: High yield CDS

Liquid, daily pricing, used for hedging.

Leveraged Loan Market

Floating-rate corporate loans:

• Morningstar LSTA Index
• Related to private credit
• Different from bonds (seniority, floating)

Data Sources

Free Sources

FRED (ICE BofA via FRED):

• Daily OAS data
• Long history
• Excellent coverage
• IQ Score: 95-96

S&P Global IHS Markit:

• CDX indices
• iTraxx (European)

Premium Sources

Bloomberg:

• Tick data
• Individual bonds
• Custom indices

ICE/BofA Direct:

• Full index methodology
• Constituent data
• Total return indices

Moody's Analytics:

• Default rates
• Recovery rates
• Credit research

Building a Credit Dashboard

Daily Monitoring

• HY OAS (BAMLH0A0HYM2): Main risk gauge

• IG OAS (BAMLC0A0CM): Investment grade

• HY-IG spread: Quality differential

• VIX: Equity vol comparison

Weekly Analysis

• Sector spreads
• Rating migration
• Fund flows (HY ETFs)
• New issuance

Monthly Review

• Default trends
• Leverage metrics
• Credit cycle positioning

Pro Tips

• HY spreads are the canary: Watch for early warnings

• IG matters for corporates: Financing conditions

• BBB cliff risk: Huge IG segment, fallen angel risk

• Credit leads equity: Often by weeks to months

• Spread velocity matters: Fast moves = stress

• CDX for real-time: More liquid than cash bonds

Explore credit spread data →