Signal vs. Noise: A Technical Look at High-Yield Spreads
Inflation and trade wars are dominating the 24-hour news cycle, but the BofA High-Yield Spread remains below the cloud. What this means for the S&P 500 in 2026.
If you’ve been watching the news, you might feel like the economy is walking a tightrope.
Between headlines about a new Fed Chief, sticky 3% inflation, and the ongoing debate over the impact of new trade tariffs, (and everything else filling the news cycle), there is no shortage of things to worry about.
Yet, if you look at the credit markets, you’ll see a very different story.
The BofA Merrill Lynch High-Yield Spread—the extra yield investors demand to hold “junk” bonds over safe government debt— remains within historical norms.
What is a High-Yield Spread?
To put it into perspective, the spread represents the “risk premium” investors want over safe-haven asset classes, like U.S. Treasury bonds.
For example:
If a 10-year U.S. Treasury bond yields 4%...
And a high-yield bond yields 8%...
The spread is 400 basis points (or 4 percentage points).
This gap compensates investors fo…