A key gauge of economic sentiment and corporate credit health has receded from its recent multi-month highs

The indicator in consideration is the ICE/BofA U.S. High Yield Index Option-Adjusted Spread (OAS)

A key gauge of economic sentiment and corporate credit health has pulled back from its recent multi-month highs in a positive development for risk-taking in stocks and crypto markets. The relief, however, could be short-lived, according to some observers.

The indicator in question is the ICE/BofA U.S. High Yield Index Option-Adjusted Spread (OAS). It tracks the average yield difference (spread) between U.S. dollar-denominated high-yield corporate bonds and U.S. Treasury securities, adjusted for embedded optionality in the bonds.

It’s widely recognized as a credit risk barometer, with a wider spread indicating greater investor concern about corporate defaults or economic weakness, which often leads to investors reducing their exposure to riskier assets such as technology stocks and cryptocurrencies.

The OAS, which represents the premium investors demand for holding high-yielding bonds over the relatively safer Treasury notes, has decreased to 3.2% from the six-month high of 3.4% reached earlier this month.

This decline in the spread has coincided with a renewed rally in bitcoin (BTC) and Nasdaq.

The spread surged by 100 basis points in four weeks to mid-March as President Donald Trump's tariffs sparked concerns of a recession. During that period, both BTC and Nasdaq suffered setbacks, with the cryptocurrency falling to lows below $80K.

Temporary respite?

Analysts anticipate that the OAS spread will widen further in the coming weeks as the negative impact of Trump's tariffs becomes more apparent, according to Mint and Reuters.

"We think this is just getting started and will get worse before it gets better," said Hans Mikkelsen, managing director of credit strategy at TD Securities, in a recent note to clients.

Applying technical analysis principles to the OAS chart also suggests the same.

The spread has moved above the three-year descending trendline, which is a significant level to watch for risk asset investors.