The recent rise in credit stress is casting a shadow over the US stock market, as widening credit spreads signal increased default risk. This financial strain is underscored by a surge in bankruptcy filings, nearing post-pandemic highs, and a steepening yield curve that has heightened rates volatility. As bond yields rise, borrowing costs escalate, putting further pressure on corporate profits and potentially leading to declining stock prices. The VIX, a key measure of market volatility, is closely linked to these credit market dynamics, with increased bond volatility often coinciding with falling equity prices. Investment-grade credit spreads have begun to widen, indicating a rising perception of risk that is less swayed by high stock valuations. Defaults in leveraged loans have reached a 20-month high, suggesting underlying financial vulnerabilities that could spill over into high-yield credit markets.
The VS TR -1x Short VIX Futures ETF (SVIX) is currently priced at $24.65 as of 05:20 AM on Thursday, January 9.