Formula & Calculation Mechanism
US High Yield Bond Yield minus US Treasury Benchmark Yield (or HYG ETF / LQD ETF ratio)
Tight credit spreads (<3.5%) signal easy corporate refinancing. Widening spreads (>5.0%) signal credit distress.
Market Impact on US Equities & S&P 500
Widening spreads precede stock market pullbacks as corporate funding costs escalate.
Historical Precedents & Bull/Bear Regimes
Surged above 10% during 2008 and 2020 crises.