High Yield Floating On Declining VIX And Low Defaults
(3 min read)
It’s happening – the VIX volatility index has finally dropped into the teens and is following the high yield spread downward (Chart 1). We have noted in past articles that this pattern is quite unusual – usually in a recovering market the VIX and high yield spread fall roughly in tandem. We have been expecting the VIX to fall – although we acknowledge the more elevated level of VIX since the election could have also been implying that the spread rally in high yield was overdone.
Looking forward we expect the VIX will continue to gradually fall. A combination of vaccines, a reopening economy, and hefty fiscal / monetary support make it unlikely that the economy is going to hit an air pocket any time soon.
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