The Fed, like the rest of us, is being directed by markets
As shown in yesterday’s post the Fed is being directed in large part by the 2yr Treasury yield, which is rising to inform them they are lagging with respect to inflation fighting (ha ha ha, but work with me here).
Other market indicators like credit spreads will actually tell the story of when the inflated bull across asset markets is in trouble. I normally use junk bond fund HYG in ratio to Treasury and Investment Grade funds TLT and LQD. But from the St. Louis Fed we have an ongoing marker as well.
“The ICE BofA Option-Adjusted Spreads (OASs) are the calculated spreads between a computed OAS index of all bonds in a given rating category and a spot Treasury curve. An OAS index is constructed using each constituent bond’s OAS, weighted by market capitalization. The ICE BofA High Yield Master II OAS uses an index of bonds that are below investment grade (those rated BB or below).”
As you can see, credit spreads are in another of those troughs that run with bull phases in asset markets. When this spread starts to elevate you’ll know that a warning is engaging and when it spikes you’d want to be prepared for the next deflationary liquidation event, mini (2020) or maxi (2008). As yet, it’s flagging along the bottom, which in contrarian terms means high risk but in practical terms means no disaster yet evident as the inflated boom labors on.
For “best of breed” top down analysis of all major markets, subscribe to NFTRH Premium, which includes an in-depth weekly market report, detailed market updates and NFTRH+ dynamic updates and chart/trade setup ideas. Subscribe by PayPal or credit card using a button on the right sidebar (if using a mobile device you may need to scroll down). Keep up to date with actionable public content at NFTRH.com by using the email form on the right sidebar. Follow via Twitter @NFTRHgt.
