A key gauge of economic sentiment and corporate credit health has receded from its recent multi-month highs, presenting a positive development for risk-taking in stocks and cryptocurrency markets. However, some observers caution that this relief could be short-lived.
The indicator in consideration is the ICE/BofA U.S. High Yield Index Option-Adjusted Spread (OAS), which measures the average yield difference (spread) between U.S. dollar-denominated high-yield corporate bonds and U.S. Treasury securities, adjusted for embedded optionality in the bonds.
This spread is widely tracked as a barometer of credit risk; a widening indicates growing investor concern regarding corporate defaults or economic weakness, leading many to lighten their exposure to riskier assets such as technology stocks and cryptocurrencies.
Recently, the OAS has dropped to 3.2% from the six-month high of 3.4% seen earlier this month. This decline supports a renewed upswing in Bitcoin (BTC) and the Nasdaq index.
Notably, the spread surged by 100 basis points in just four weeks to mid-March, largely driven by fears surrounding President Donald Trump’s tariffs, which heightened recession concerns. During this tumultuous period, both BTC and the Nasdaq experienced significant declines, with the cryptocurrency plummeting to lows under $80K.
Temporary Relief?
Looking ahead, analysts predict that the OAS spread may widen further in the upcoming weeks as the negative repercussions of Trump’s tariffs become more pronounced, as outlined by recent reports from Mint and Reuters.
“We think this is just getting started and will get worse before it gets better,” stated Hans Mikkelsen, managing director of credit strategy at TD Securities, in a recent client note.
Applying technical analysis principles to the OAS chart underscores these concerns. The spread has breached a three-year descending trendline, signaling a high alert for investors engaged in riskier asset classes.
