High-yield credit spread

The high-yield credit spread — the ICE BofA US High Yield Option-Adjusted Spread — is the extra yield that below-investment-grade ('junk') bonds pay over US Treasuries. It measures how much compensation lenders demand for taking credit risk. Very tight spreads mean lenders see almost no chance of default, a sign of froth and complacency; widening spreads mean stress is building in the financial system. The spread averages around 5 percentage points, tightened toward 3 points during recent booms, and blew out to roughly 20 points in the 2008 crisis.

A spread near the ~5-point average reflects a normal pricing of default risk. Very tight spreads (near 3 points) mean investors are complacent about risk — a froth signal — so the verdict is inverted. Rapidly widening spreads mean stress is building and can precede or accompany equity sell-offs.

1. The ICE BofA US High Yield Index Option-Adjusted Spread measures the average spread across the junk-bond universe.
2. We store the daily closing value (in percentage points).
3. Because unusually tight spreads signal complacency, the verdict is inverted.

• FRED now retains only a few years of this series, so the historical chart is shorter than the others.
• Spreads reflect credit conditions broadly, not equity valuation specifically.

What is a normal high-yield credit spread?

The long-run average is roughly 5 percentage points. Spreads near 3 points signal complacency and froth, while spreads above 8–10 points signal serious financial stress.

How wide did credit spreads get in past crises?

The spread blew out to roughly 20 percentage points during the 2008 financial crisis and spiked near 10 points during the March 2020 COVID shock, as investors demanded far more compensation to hold risky debt.

Why do tight credit spreads signal risk?

Unusually tight spreads mean lenders are pricing in almost no risk of default — a classic late-cycle sign of complacency. That is why this gauge is inverted: very low readings register as a warning.

• FRED — ICE BofA US High Yield OAS (BAMLH0A0HYM2)
• ICE BofA US High Yield Index