IG vs HY Spreads
The relationship between investment-grade and high-yield credit spreads — a barometer of risk appetite and recession probability.
Definition
Investment grade (IG) bonds are rated BBB- or higher; high yield (HY) is BB+ and below. The HY/IG ratio (or HY minus IG difference) compresses in risk-on regimes and expands sharply when default risk rises.
A rising HY-IG ratio with stable IG spreads signals isolated credit stress; both widening together signals systemic risk-off.
Public research record
Research framework · page evidenceCompleted application: IG vs HY Spreads
The HY/IG relationship is one of the cleanest cross-sectional reads on whether stress is broad or concentrated.
| Type | Claim | Scope |
|---|---|---|
| Release fact | The relationship between investment-grade and high-yield credit spreads — a barometer of risk appetite and recession probability. | Credit |
| Release fact | Q4 2018: HY spreads widened 250bp while IG widened only 35bp — a high-beta sell-off rather than systemic stress. The Powell pivot in early 2019 normalized the ratio. | Published example |
Countercase, invalidators, and sources
The relationship is conditional: another driver can dominate the same asset over the selected horizon.
- · The underlying observation changes materially.
- · The selected asset has no measurable exposure to this mechanism.
Why it matters
The HY/IG relationship is one of the cleanest cross-sectional reads on whether stress is broad or concentrated.
Worked example
Q4 2018: HY spreads widened 250bp while IG widened only 35bp — a high-beta sell-off rather than systemic stress. The Powell pivot in early 2019 normalized the ratio.