The Bullish Bubble is Back, But for How Long?

by

🚨💸 The Bullish Bubble is Back, But for How Long? 🤔

The Bullish Bubble is Back, But for How Long?

What to know, dear friend:

  • The ICE/BofA U.S. High Yield Index Option-Adjusted Spread (OAS), a trusty indicator of economic sentiment and corporate credit health, has retreated from its recent highs, giving the green light for risk-takers to frolic in the crypto and equity markets.
  • The OAS, which measures the yield difference between high-yield corporate bonds and U.S. Treasury securities, has dropped to 3.2% from a six-month high of 3.4% – a development that has sent shivers down the spines of bears and bulls alike.
  • However, our esteemed analysts predict the OAS spread may widen in the coming weeks, as the negative impact of Trump’s tariffs becomes a harsh reality.

Ah, the sweet relief! The key gauge of economic sentiment and corporate credit health has receded from its recent multi-month highs, giving the crypto and equity markets a much-needed boost. But, dear friend, do not get too comfortable on your velvet couch, for this relief may be short-lived.

The indicator in question, the ICE/BofA U.S. High Yield Index Option-Adjusted Spread (OAS), is a curious creature, measuring the average yield difference (spread) between U.S. dollar-denominated high-yield corporate bonds and U.S. Treasury securities, adjusted for embedded optionality in the bonds. It’s a credit risk barometer, you see, and the widening spread represents growing investor concern about corporate defaults or economic weakness – a development that would send investors scurrying for cover, leaving riskier assets like technology stocks and cryptocurrencies to wither like a bouquet of flowers in a drought.

The OAS, representing the premium investors demand for holding high-yielding bonds over the relatively safer Treasury notes, has dropped to 3.2% from the six-month high of 3.4% early this month. Ah, the sweet taste of victory for the bulls!

The decline in the spread supports a renewed upswing in bitcoin (BTC) and Nasdaq – a development that has sent the bears running for cover, their tails between their legs.

The spread surged by 100 basis points in four weeks to mid-March as President Donald Trump’s tariffs raised the recession spectre, sending both BTC and Nasdaq tumbling to lows under $80K. Ah, the drama!

Temporary relief, or a brief respite? 🤔

Our analysts expect the OAS spread to widen further in the coming weeks as the negative impact of Trump’s tariffs becomes clear, according to Mint and Reuters. Ah, the plot thickens!

“We think this is just getting started and will get worse before it gets better,” Hans Mikkelsen, managing director of credit strategy at TD Securities, said in a recent client note. Ah, the ominous warning!

Applying technical analysis principles to the OAS chart suggests the same – a warning sign that the bears are lurking in the shadows, waiting to pounce.

The spread has moved past the three-year descending trendline, warranting high alert from risk asset investors. Ah, the alarm bells are ringing!

Read More

2025-03-21 15:28