High-yield bonds
High-yield bonds are corporate debt rated below investment grade (BB and lower) — issued by leveraged companies that pay up for capital. The segment exists because investors trade default risk for yield; in calm times the premium is thin, in stress it explodes.
Why HY spreads lead
Junk issuers fail first when the economy turns, so HY spreads reprice earliest and most violently — typically jumping from ~3% to 8–10%+ in recessions. Equity can shrug off stress for months; credit cannot — refinancing is existential for leveraged issuers.
On this monitor
The HY OAS signal fires when the spread crosses its threshold — a widening credit-risk premium that has preceded or accompanied every modern downturn, including the 2015–16 oil bust that didn't become a recession (the honest kind of false positive a credit signal should occasionally produce).