Methodology · How to Read Credit Stress
OAS (Option-Adjusted Spread) measures the spread of corporate bonds over Treasuries, adjusted for embedded options. It's the canonical risk premium: when OAS widens, credit investors are demanding higher compensation for the same default risk — equities historically follow with a 2-8 week lag.
HY OAS regime thresholds: <3% BENIGN · 3-4.5% NEUTRAL · 4.5-6% STRESSED · 6-8% ACUTE · >8% CRISIS. The 2008 GFC peak was 21%. The 2020 COVID peak was 11%.
Quality dispersion within tiers is the second-order signal. BBB-AAA spread captures IG cycle stress (BBB is the lowest IG, most cycle-sensitive). CCC-BB spread captures HY tail risk — when CCC widens but BB doesn't, the riskiest names are being repriced.
HY-IG is the canonical risk-on/off macro spread. Historically >3% signals risk-off regime.
Cross-asset confirmation: 10y-2y curve inversion is the recession leading indicator; an inverted curve with widening credit is the most reliable pre-recession signal in modern macro.
Source: FRED ICE BofA OAS series · daily 4:00 PM ET refresh · 10 years of history.