Credit Spread Eases, Boosting Risk Assets—But Will It Last?

A key measure of credit market stress has eased from recent highs, providing a lift to risk assets like stocks and cryptocurrencies. However, analysts warn that the relief may be short-lived.

The ICE/BofA U.S. High Yield Index Option-Adjusted Spread (OAS), which tracks the additional yield investors demand for high-yield corporate bonds over U.S. Treasuries, has fallen to 3.2% from a six-month peak of 3.4%. A narrowing spread generally indicates reduced credit risk, fueling investor confidence in speculative assets such as tech stocks and bitcoin (BTC).

Earlier this month, the OAS had surged by 100 basis points amid growing fears that President Donald Trump’s tariff policies could tip the economy into recession. During that time, both BTC and the Nasdaq suffered sharp declines, with bitcoin dropping below $80K.

Uncertainty Lingers

Despite the recent improvement, some analysts believe the spread could widen again as the economic impact of tariffs becomes more pronounced. Reports from Mint and Reuters suggest that market participants are bracing for renewed volatility.

“This is likely just the beginning of a broader trend, and we anticipate further deterioration before conditions stabilize,” said Hans Mikkelsen, managing director of credit strategy at TD Securities, in a client note.

Technical indicators also signal caution. The spread has recently broken above a three-year descending trendline, a development that could indicate further credit market stress and renewed headwinds for risk assets.