Although the US stock market melts for the fourth time, everyone is starting to think to find the bottom, but I have to remind you that here is an indicator worth paying attention to.In a situation where Risk Parity was completely broken, the entire market lacked liquidity, was ruined, and no assets were spared.
Looking at every crisis such as 911 and the subprime mortgage crisis, interest spreads on high-yield bonds always fluctuate greatly.The same is true today. Interest spreads on high-yield bonds have skyrocketed in recent days, but there is still half way until the All Time High set by the subprime mortgage crisis.
Interest spreads on junk bonds have risen sharply. Source: Bloomberg
If the Federal Reserve does not bailout beyond expectations in the near future, interest spreads on high-yield bonds are expected to approach the extent of the subprime mortgage crisis. Moreover, according to historical data, a rebound often takes more time. It will take 22 months for the fastest rebound, such as Black Monday in 1997.
The current epidemic is clearly more like the 911 crisis. At the time of 911, the Dow fell 33 months before bottoming out. Although the decline in this round was the fastest in history, no one can guarantee whether it will be adjusted for 33 months.
US Stock Intelligence Officer | Eric