Definition
The option-adjusted yield spread between junk bonds and Treasuries. Wider spreads signal credit stress; tighter spreads signal confidence.
Tracked via ICE BofA US HY OAS (BAMLH0A0HYM2). Below 300 bps: euphoric credit markets. 300-450 bps: normal. 450-600 bps: stress. Above 600 bps: crisis. This indicator sits in the Credit/Intermediation tier (5% group weight). Credit markets are often faster at pricing systemic risk than equity markets. When HY spreads widen alongside rising VIX, that joint stress signal is informative even though individually their tier weights are small.