New WebsiteWhat does behind the curve look like? The Federal Reserve is about to tighten monetary policy, i.e., raise rates, while high yield spreads are above their historical mean. They have not done this at all going back to 2000 and have only done it twice since the 1970s (roughly 3% of all hikes).
High yield spreads are the difference in interest rates between high yield bonds and treasuries. This spread is used to assess credit markets, and when the spreads are moving higher it means there is more credit risk priced into credit markets. They can also be used as a gauge of economic activity as higher spreads are a great market-based indicator of a slowing economy. High yield spreads are at 5.5%, or high yield has a yield 5.5% higher than treasury yields, which is above the historic mean of 5.4%. The Federal Reserve is clearly about to hike rates into a slowing economy.
On the positive side: the Fed may not have to hike rates as much as expected. On the negative side: until then, recession is looking more likely, and equities have slightly more downside.
Sean Dillon, CMT, CFTe
SVP, Investment Strategies
Congress Wealth Management LLC (“Congress”) is a registered investment advisor with the U.S. Securities and Exchange Commission (“SEC”). Registration does not imply a certain level of skill or training. For additional information, please visit our website at congresswealth.com or visit the Investment Adviser Public Disclosure website at www.adviserinfo.sec.gov by searching with Congress’ CRD #310873.
This note is provided for informational purposes only. Congress believes this information to be accurate and reliable but does not warrant it as to completeness or accuracy. This note may include candid statements, opinions and/or forecasts, including those regarding investment strategies and economic and market conditions; however, there is no guarantee that such statements, opinions and/or forecasts will prove to be correct. All such expressions of opinions or forecasts are subject to change without notice. Any projections, targets or estimates are forward looking statements and are based on Congress’ research, analysis, and assumption. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and other sources may be required to make informed investment decisions based on your individual investment objectives and suitability specifications. This note is not a complete analysis of all material facts respecting any issuer, industry or security or of your investment objectives, parameters, needs or financial situation, and therefore is not a sufficient basis alone on which to base an investment decision. Clients should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed or recommended in this note. No portion of this note is to be construed as a solicitation to buy or sell a security or the provision of personalized investment, tax or legal advice. Investing entails the risk of loss of principal.