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What is HY OAS?
The High-Yield Option-Adjusted Spread (HY OAS) is the average extra yield investors demand to hold US high-yield (BB and below) corporate bonds versus comparable Treasuries, after adjusting for embedded options like call features. It is the most-watched cyclical credit indicator. Sub-300bp signals risk-on; 500-700bp is neutral cycle; 800bp+ is recession pricing; 1000bp+ is crisis. The pace of change matters more than the level - sudden widening usually leads equity drawdowns.
- <300bp - Risk-on. Tight cycle conditions.
- 500-700bp - Neutral. Normal cyclical range.
- 800bp+ - Recession pricing.
- 1000bp+ - Crisis (2008, 2020 COVID, 2022 lows).
What HY OAS measures
- High-yield universe - BB, B, CCC-rated US corporate bonds
- Spread - yield over comparable-maturity Treasury
- Option-adjusted - strips out the value of call/put features so the spread reflects pure credit risk
How to read
Level matters: sub-300bp = expensive credit; 1000bp+ = crisis pricing.
Pace matters more: a 50bp widening in a week is a stress signal regardless of starting level.
Direction vs equities matters most: when HY OAS widens but equities rally, distrust the rally. Credit usually wins these disagreements.
Where to read it
ICE BofA US High Yield OAS index (FRED ticker: BAMLH0A0HYM2) is the standard public reference.