Is Oil’s Spill Turning the Credit Cycle?

While the slumping price of oil is bearing the brunt of the current volatility in the markets these days, there are other signs that indicate more widespread shifts in the credit cycle.  High-yield credit default spreads have widened, as shown by both the S&P/ISDA CDS U.S. High Yield BB and the S&P/ISDA CDS U.S. High Yield B and Below.  The indices are up 183 and 197 bps, respectively, over the past year (see Exhibit 1).  The turmoil in the energy sector has had an impact; however, the widening also represents the overall discomfort with the amount of leverage companies have on their balance sheets within the broader high-yield market.

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