Macro/US Monetary Policy/Market Detail

Will HY corporate spreads stay below 350bp through Q2 2026?

activeFinancial ConditionsResolves: June 30, 2026

The Condition

Fed cuts ≥25bp at March 18, 2026 FOMC meeting

External probability: 5.9%Source: CME FedWatchResolves: March 18, 2026

Our Ensemble Estimates

If condition is true

80%

Model agreement: 96%

Given Fed cuts ≥25bp: Will HY corporate spreads stay below 350bp through Q2 2026?

If condition is false

81%

Model agreement: 97%

Given Fed holds: Will HY corporate spreads stay below 350bp through Q2 2026?

Causal Effect

-1pp(negligible)

A Fed cut has negligible effect on HY spread stability — spreads are well below 350bp with strong cushion regardless of the rate decision

Unconditional probability:80.9%(blended: P(Y|T) × 5.9% + P(Y|F) × 94.1%)

Why This Matters

Tests whether a rate cut reinforces the current loose financial conditions regime. HY spreads are at 288bp (43rd percentile of 5-year range), well below the 350bp threshold that would signal a shift to NEUTRAL conditions. A cut would signal easier policy ahead, potentially compressing spreads further. Financial conditions (NFCI -0.568) are already the loosest in 12 months.

Resolution Criteria

ICE BofA US High Yield Index Option-Adjusted Spread (FRED: BAMLH0A0HYM2) daily closing value does NOT exceed 350bp at any point between March 18, 2026 and June 30, 2026

Source: FRED series BAMLH0A0HYM2 (ICE BofA US High Yield OAS)Date: June 30, 2026

Source Analysis

HY OAS crossing above 350bp signals meaningful risk-off and shifts FINANCIAL_CONDITIONS toward NEUTRAL

Financial ConditionsFINANCIAL_CONDITIONSPriority: HIGH

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