Stocks Approach Local Top as Credit Spreads Widen, Financial Conditions Tighten
US500
-0.31%
Add to/Remove from Watchlist
Add to Watchlist
Add Position
Position added successfully to:
Please name your holdings portfolio
Type:
BUY
SELL
Date:
Amount:
Price
Point Value:
Leverage:
1:1
1:10
1:25
1:50
1:100
1:200
1:400
1:500
1:1000
Commission:
Create New Watchlist
Create
Create a new holdings portfolio
Add
Create
+ Add another position
Close
DE10Y…
-0.99%
Add to/Remove from Watchlist
Add to Watchlist
Add Position
Position added successfully to:
Please name your holdings portfolio
Type:
BUY
SELL
Date:
Amount:
Price
Point Value:
Leverage:
1:1
1:10
1:25
1:50
1:100
1:200
1:400
1:500
1:1000
Commission:
Create New Watchlist
Create
Create a new holdings portfolio
Add
Create
+ Add another position
Close
IT10Y…
-1.60%
Add to/Remove from Watchlist
Add to Watchlist
Add Position
Position added successfully to:
Please name your holdings portfolio
Type:
BUY
SELL
Date:
Amount:
Price
Point Value:
Leverage:
1:1
1:10
1:25
1:50
1:100
1:200
1:400
1:500
1:1000
Commission:
Create New Watchlist
Create
Create a new holdings portfolio
Add
Create
+ Add another position
Close
HYG
-0.15%
Add to/Remove from Watchlist
Add to Watchlist
Add Position
Position added successfully to:
Please name your holdings portfolio
Type:
BUY
SELL
Date:
Amount:
Price
Point Value:
Leverage:
1:1
1:10
1:25
1:50
1:100
1:200
1:400
1:500
1:1000
Commission:
Create New Watchlist
Create
Create a new holdings portfolio
Add
Create
+ Add another position
Close
VIX
-0.91%
Add to/Remove from Watchlist
Add to Watchlist
Add Position
Position added successfully to:
Please name your holdings portfolio
Type:
BUY
SELL
Date:
Amount:
Price
Point Value:
Leverage:
1:1
1:10
1:25
1:50
1:100
1:200
1:400
1:500
1:1000
Commission:
Create New Watchlist
Create
Create a new holdings portfolio
Add
Create
+ Add another position
Close
SHY
-0.05%
Add to/Remove from Watchlist
Add to Watchlist
Add Position
Position added successfully to:
Please name your holdings portfolio
Type:
BUY
SELL
Date:
Amount:
Price
Point Value:
Leverage:
1:1
1:10
1:25
1:50
1:100
1:200
1:400
1:500
1:1000
Commission:
Create New Watchlist
Create
Create a new holdings portfolio
Add
Create
+ Add another position
Close
DX
-0.15%
Add to/Remove from Watchlist
Add to Watchlist
Add Position
Position added successfully to:
Please name your holdings portfolio
Type:
BUY
SELL
Date:
Amount:
Price
Point Value:
Leverage:
1:1
1:10
1:25
1:50
1:100
1:200
1:400
1:500
1:1000
Commission:
Create New Watchlist
Create
Create a new holdings portfolio
Add
Create
+ Add another position
Close
Stocks finished lower on Monday, with a good portion of the decline coming in the final 10 minutes, when a nearly $2 billion sell imbalance was posted for the closing cross. Meanwhile, the VIX was higher while rates and spreads rose. The dollar took a break following a colossal move last week.
One spread to watch here is the difference between the Italy 10-Year and Germany 10-Year rates because the spread has contracted a lot since October. Now, it appears to be breaking a short-term downtrend, and the RSI shows signs of turning higher, which could indicate that a widening of this spread is starting.
IT10Y-DE10Y-Daily Chart
This spread is a good gauge for risk. When it falls, just like any spread, it indicates a feeling of no worries in the market, and when it rises, a feeling of nervousness. It is also sometimes a good leading indicator for high-yield credit spreads here in the US, and the ratio of the SHY/HYG or the BofA High Yield OAS Index tends to follow this spread between German and Italian bonds.
SHY/HYG-Daily Chart
Widening spreads are also associated with a rising VIX index.
IT10Y-DE10Y-Daily Chart
When you piece all of this together, it explains why stocks were lower. As we know, when spreads widen, the earnings yield of the S&P 500 rises with it.
SPX/CDX-Daily Chart
So, while this may seem silly to some, or that it doesn’t matter, these credit spreads are probably more than any AI narrative the media can come up with because, at the end of the day, when these credit spreads start to widen, financial conditions tigthen, and liquidity is removed from the market. Keep an eye on them.
