Credit spreads are expanding, reaching its highest level since August 2024. This fell 33% during the winding of the carry trade in yen, consistent with a period consistent with Bitcoin (BTC).
One way to track this is to use the ratio of iShares 3-7 Year Financial Debt (IEI) to iShares Iboxx $High Hight Corporate Bond ETF (HYG). This IEI/HYG ratio, highlighted by analyst Caleb Franzen, serves as a proxy for credit spreads, showing the sharpest spike since the Silicon Valley Bank crisis in March 2023.
Historically, Bitcoin and other risky assets have tended to decline during a rapid expansion of credit spread.
The key question now is whether this surge has reached its peak or is it moving forward? As spreads continue to rise, it may reflect an increase in stress on financial markets, writing about further troubles for risk-on positioning.
Credit spreads represent the difference in yields between safe government bonds and riskier corporate bonds. A widening spread will result in increased risk aversion and tightening of financial position.
However, market action on Friday appears to indicate that Bitcoin is beginning to separate from traditional markets, outperforming stocks. One analyst’s event calls it a new “US quarantine hedge,” indicating that BTC may be beginning to function like a safe haven or digital gold for Tradfi investors. Read more: Crypto surpasses NASDAQ as BTC becomes “US quarantine hedge” amid the massacre of 5T$5T stocks