Credit Spreads Typically Tighten After Fed Ends Accommodative Policy
A normalization of monetary accommodation does not necessarily lead to an imminent widening in credit spreads. Since 1986, the Federal Reserve started to unwind its easing policies five times, during four of which, U.S. high yield spreads continued to ratchet in. On average, credit spreads kept tightening for nine months following the first increase in the Federal Funds Target Rate, as the strengthening economy tended to remain supportive of risk assets.
U.S. HIGH YIELD BOND SPREAD PERFORMANCE WHEN THE FED STARTED RAISING RATES