High yield spread

September 23, 2009

(This article was first published on Quantitative thoughts » EN, and kindly contributed to R-bloggers)

Last week I had opportunity to participate at NYU, where one of the lecturers was Z-score man’s. He spent same time talking about the high yield spread as measure of the macro economy. Then spread is high (junk bonds become very cheap and Treasuries become ‘gold’) –  crisis is right here. Intuitively, it is similar to VIX index, but the way of building it is different.
To build this indicator I took Barclays Capital High Yield Bond ETF and subtracted SPDR Barclays Capital International Treasury Bond ETF to get spread. Keep in mind, that maturities of two ETF are not the same…

The result is:


It is useful to keep eye on it, together with VIX indicator.

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