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CREDIT MARKETS FLASH CAUTION, NOT CAPITULATION

U.S. corporate bonds have weakened in recent weeks as a spike in oil prices from the U.S.-Israeli war on Iran raises concerns over a weakening economy.

But they have not yet reached the levels that have historically marked a good entry point for investors, suggesting further weakness in both credit and stocks may still lie ahead, according to Nicholas Colas, co-founder of DataTrek Research.

Investment-grade corporate bond spreads currently sit at 0.91 percentage points above comparable Treasuries, well above January's low of 0.73 points but still below the 2023-to-present average of 1.01 points.

That shows that spreads have not even returned to normal, let alone the elevated levels that have in the past signaled a buying opportunity, Colas said.

History backs that up. During the collapse of Silicon Valley Bank in March 2023, IG spreads hit 1.64 percentage points. When the yen surged unexpectedly in August 2024 and sent the Nikkei tumbling, spreads reached 1.12 points. And during last April's tariff shock they spiked to 1.21 points.

In all three cases, those spread highs coincided with near-term lows for the S&P 500 — and proved to be excellent entry points for stocks.

Meanwhile Jigar Patel of Barclays Capital notes that the bank’s credit signals are moving closer to capitulation than complacency and are back to levels last reached in May, with current readings considered neutral in terms of forward performance.

Only two of nine components in the Barclays index are above their trigger levels, with high-yield positioning far from signaling alarm.

For now, Colas sees spreads continuing to widen barring a sudden easing of Middle East tensions.

(Karen Brettell)

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EARLIER ON LIVE MARKETS:

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US STOCKS CLIMB WITH MIDDLE EAST, FED IN FOCUS CLICK HERE

SPRING EQUINOX, 200-DMA IN FOCUS AS S&P 500 SELLOFF EXTENDS CLICK HERE

RISK REWARD SHIFTS AGAINST THE DOLLAR - BARCLAYS CLICK HERE

PUTTING ON A BRAVE FACE CLICK HERE

ONE BARREL AFTER ANOTHER CLICK HERE

EUROPEAN EQUITIES MOSTLY LOWER, ENERGY STOCKS GAIN CLICK HERE

EUROPE BEFORE THE BELL: STOCK FUTURES EDGE UP, UNICREDIT MAKES COMMERZBANK BID CLICK HERE

DRAWING TO A STRAIT IS ALWAYS A RISKY PLAY CLICK HERE