By Phil Anderson, Editor, Cycles Trading with Phil Anderson

The credit market is in turmoil… or so you hear from the mainstream media.

Bond prices are falling off a cliff… which sends yields higher (the two are inversely related)…

Stocks are shaky, and the U.S. dollar is soaring.

Sounds like the market is nervous…

Or is it?

Well, we have a new data point proving that the market commentariat may be overstated.

It’s called the “Credit VIX”…

New Credit Index Confirms Where We Are in the 18.6-Year Cycle

You may have heard of the VIX, which is often called the “fear index.”

The underlying math is quite complex, but the idea is that a higher index reading tells you that the equity market is scared.

Now, Cboe Global Markets and S&P Global are about to launch “Credit VIX,” which will estimate how nervous bond investors are.

The index will track volatility expectations over the following month for several kinds of bonds, including investment-grade ones (the safer sort) and the high-yield ones (often called “junk bonds”).

The index launches on October 13, but we already have simulated historical data for it. This history was backfilled with data going back to 2012.

So what do we see here?

Note that VIXHY tracks high-yield debt, and VIXIG tracks investment-grade bonds.


Source: Cboe Global Markets, Inc. Press Release

(Click here to expand image)

Well, the picture is clear…

Credit Volatility Has Fallen Since Mid-2022

You have all the usual suspects here… the Taper Tantrum, the Covid pandemic, the Silicon Valley banking crisis…

What you don’t see necessarily is the descent into credit chaos that the media is talking about.

Yes, when the Fed and other central banks started hiking, the Credit VIX index went up.

But since late 2022 (excluding the SVB drama, which was well-contained as it wasn’t systemic), credit volatility has been in decline.

But aren’t companies supposed to be tumbling under their now-impossible debt burdens?

Aren’t bond investors supposed to be dumping their Treasury holdings at record rates?

Well, the data shows that since late 2022, credit markets have been quite orderly.

And yes, some investors are selling bonds now… because the economy is stronger than they expected.

…As I’ve told my readers multiple times, now is not the time for a recession. So solid employment numbers should not send you into a panic mode.

The economy is doing well, that’s why some investors are selling bonds.

Also, because the economy is doing well, businesses are managing their debt just fine.

And if you look closely at the chart above, you’ll notice that the credit market is acting similarly to before the Fed’s hiking saga.

In other words, the credit market feels just as good now as it did in 2021.

And that’s exactly what my 18.6-year real estate cycle predicts.

The credit market is expanding… the economy is doing well…

Keep calm and carry on. We’re in for some good times over the next few years.



Phil Anderson

Editor, Cycles Trading with Phil Anderson

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