How to chart credit spreads over time
Quick answer
Chart credit spreads by plotting the yield difference between corporate bonds and Treasuries over time using free FRED data series: BAMLC0A0CM (investment grade) and BAMLH0A0HYM2 (high yield). Widening spreads signal increasing default risk and financial stress. Credit spreads have preceded every US recession in the last 50 years, making them one of the most reliable real-time economic indicators.
What do credit spreads tell you about the economy?
Credit spreads — the yield difference between corporate bonds and risk-free government bonds — are one of the most reliable real-time indicators of financial stress in the economy. When spreads widen, markets are pricing in higher default risk. When they tighten, confidence is improving.
Unlike stock indices, which reflect equity sentiment, credit spreads reflect the bond market's assessment of corporate solvency. The bond market is generally larger, more institutional, and arguably more rational than the equity market. When credit spreads diverge from equity prices, it's usually the credit market that's right.
What are the most important credit spread indicators?
FRED provides free, daily credit spread data. The most important series:
Investment Grade OAS (BAMLC0A0CM): The spread of investment-grade corporate bonds over Treasuries. Normal range: 80-150 basis points. Stress level: above 200bp.
High Yield OAS (BAMLH0A0HYM2): The spread of high-yield ('junk') bonds. Normal range: 300-500bp. Stress level: above 600bp. Recession signal: above 800bp.
BBB OAS (BAMLC0A4CBBB): The lowest investment-grade tier. Important because BBB is the largest segment of the IG market, and downgrades to BB ('fallen angels') can trigger forced selling by IG-only funds.
Can credit spreads predict a recession?
Credit spreads have preceded or coincided with every US recession in the last 50 years. The typical pattern: spreads begin widening 3-6 months before GDP turns negative. By the time the recession is officially declared (which NBER does with a lag), spreads have already been screaming.
The 2008 crisis: HY spreads hit 2,000bp. The 2020 COVID crash: HY spreads spiked to 1,100bp in three weeks. The 2022 tightening cycle: spreads widened but stayed below recession thresholds, consistent with the 'soft landing' narrative.
How do I build a credit spread chart from FRED data?
Connect FRED as a data provider in Quadesto. Select the credit spread series (DGS10, BAMLC0A0CM, BAMLH0A0HYM2). Quadesto renders a time series with:
• Multiple spread series on the same chart
• Recession shading (gray bands for NBER recession dates)
• Threshold lines at key stress levels
• Derived columns for the IG-HY spread differential
The recession overlay makes the relationship between credit stress and economic downturns immediately visible — a chart that's far more informative than the raw FRED line plot.