US Treasury 'fear index' spikes, a warning signal of widening corporate bond spreads

Bloomberg··US·Read original
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Summary · why it matters

Volatility in the bond market, reflecting uncertainty over the future path of yields, has surged, and there is growing concern it could be a precursor to deterioration in the corporate bond market. The ICE BofA MOVE index, which measures US Treasury volatility, jumped last week to about 105 basis points, hitting its highest level since March and far exceeding its 10-year average of about 80. Strategists including Nathaniel Rosenbaum of JPMorgan Chase estimated last week that, judged against historical levels of bond and equity market volatility, US investment-grade corporate bond spreads should be about 0.07 percentage points wider than they are now. US investment-grade corporate bond spreads stood at 77 basis points as of the 24th, narrowing 2 basis points since the start of the month and maintaining relative resilience, but US companies issued about 33 billion dollars of bonds last week, below dealers' forecast of about 40 billion dollars, and at least one company postponed a bond sale on the 23rd. The cost of using credit derivatives to hedge North American corporate credit portfolios against default risk is also rising, with the CDX investment-grade index at about 58 basis points on the 25th on a roll-adjusted basis, up from about 55 basis points at the end of August.

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