We may be near the bottom of the stock market decline.
Credit spreads measure investors' risk tolerance. This indicator is particularly powerful when it differs from movements in the equity market. Over the last few days, the stock market has declined while credit spreads show investors taking on MORE risk. Narrower spreads, as in the graph below, are the result of fixed-income investors leaving the safety of US government ten-year notes and buying riskier junk bonds.
This may be a time to add risk in the form of equity exposure to your portfolio. Perhaps the conversation in Washington is moving toward re-opening the government and avoiding a default on our bonds.
Graph courtesy of the Federal Reserve Bank of St. Louis.
http://research.stlouisfed.org/fred2/graph/?id=BAMLH0A0HYM2
Credit spreads measure investors' risk tolerance. This indicator is particularly powerful when it differs from movements in the equity market. Over the last few days, the stock market has declined while credit spreads show investors taking on MORE risk. Narrower spreads, as in the graph below, are the result of fixed-income investors leaving the safety of US government ten-year notes and buying riskier junk bonds.
Graph courtesy of the Federal Reserve Bank of St. Louis.
http://research.stlouisfed.org/fred2/graph/?id=BAMLH0A0HYM2
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