Rising credit stress is casting a shadow over the US stock market, as widening credit spreads signal increased default risk. The recent uptick in bankruptcy filings, nearing post-pandemic highs, underscores the mounting financial strain on companies. This development is compounded by a steepening and disinverted yield curve, which has heightened rates volatility, potentially stressing corporate cash flows. As bond yields rise, the cost of borrowing escalates, 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. Increased bond volatility often coincides with falling equity prices, highlighting the connection between credit stress and stock market performance. Investment-grade credit spreads have begun to widen, indicating a rising perception of risk that is less swayed by high stock valuations. Meanwhile, defaults in leveraged loans have reached a 20-month high, suggesting underlying financial vulnerabilities that could spill over into high-yield credit markets.
The ProShares Trust Ultra VIX Short Term Futures ETF (UVXY) is currently priced at $21.38 as of 05:20 AM on Thursday, January 9.