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Will Wall Street’s Vol Shock Spill Over Into Corporate Credit?
Credit's fine. For now.
The chaos in front-end US rates that accompanied a triggered Sahm rule, a meltdown in Japanese equities and a historic spike on the VIX -- all of which played out across just two sessions, on August 2 and August 5 -- found STIRS pricing in more than 130bps of Fed cuts by year-end at the extremes.
To call that an overshoot would be to understate the case. It was absurd, as were calls for an emergency FOMC meeting. The S&P never even made it into correction territory,
Another question is HOW spreads widen. If ust rally more than corporates, mortgages and municipal that’s one thing. If ust bonds rally and spread products that is far more serious. The later would likely correlate with a serious stock market correction and a recession.
Isn’t HY, not IG, usually the red-shirt canary in this particular coal mine?