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 is part of the Credit/Intermediation tier (20% weight). Credit markets are often faster at pricing systemic risk than equity markets. When HY spreads widen alongside rising VIX, the Risk-Off signal is strongest.