An important measure of economic confidence and the state of corporate credit has decreased from its recent multi-month highs, signaling a potentially positive shift for risk appetite in stock and cryptocurrency markets. Nevertheless, some analysts warn that this relief may not last long.
The metric at hand is the ICE/BofA U.S. High Yield Index Option-Adjusted Spread (OAS), which reflects the average yield difference (spread) between U.S. dollar high-yield corporate bonds and U.S. Treasury securities, adjusted for optional features in the bonds.
This indicator is closely monitored as a barometer of credit risk; a widening spread suggests increasing investor anxiety regarding corporate defaults or economic downturns. This often leads to investors reducing their exposure to riskier assets, such as tech stocks and cryptocurrencies.
Currently, the OAS has fallen to 3.2%, down from a six-month peak of 3.4% earlier this month.
This contraction in the spread has contributed to a renewed rise in both bitcoin (BTC) and the Nasdaq.
The spread had surged by 100 basis points over four weeks through mid-March, spurred by fears of recession due to President Donald Trump’s tariffs. During that period, both BTC and the Nasdaq suffered significant losses, with the cryptocurrency dropping to below $80K.
Is it just a temporary respite?
Experts predict that the OAS spread may widen again in the coming weeks as the adverse effects of Trump’s tariffs become more evident, according to insights from Mint and Reuters.
Hans Mikkelsen, managing director of credit strategy at TD Securities, remarked in a recent client communication, “We believe this is just the beginning and it will worsen before improving.”
Applying technical analysis to the OAS chart echoes these concerns.
The spread has recently surpassed a three-year descending trendline, signaling a cause for concern among investors in risk assets.