Credit Spreads in Macro

The application of credit spreads in macro

Rates traders live on the curve(s) central-bank pricing, real yields, breakevens, term premia, fiscal risk and liquidity, all of which have both short and longer end. But one of the most useful signals for a rates macro book often sits outside the government bond market: credit spreads.

The simple version is this:

Rates tell you the price of money. Credit spreads tell you whether that price of money is starting to hurt.

A Treasury curve can tell you what the market thinks the Fed, ECB, BoE or RBA will do. Credit spreads tell you where companies can still borrow, where investors are still willing to take risk and where refinancing risk is building.

That is why a rates trader should care about credit even if they never trade a corporate bond.

The following write-up covers the application of credit spreads to further understand the reaction function of the Fed, Rates and Equities. To read more please subscribe. Note all levels of subscription gain access to a bespoke website with curve, models and macro information.

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