

Indicators of bond market stress keep hitting levels not seen since the early days of the COVID market crisis.
Driving the news: BofA's Credit Stress Indicator (CSI) just breached a level — 75, on a scale of 0 to 100 — it hasn't hit since April 2020.
Why it matters: Reaching the 75th percentile on the scale is considered a "critical zone" of credit stress. In the past, it's coincided with significant market dysfunction, says Oleg Melentyev, credit strategist at BofA.
- When markets aren't functioning smoothly, big price swings — and investor losses — are more likely. And companies have a harder time accessing capital.
How it works: The CSI measures stress in U.S. credit markets, focusing mostly on high-yield bonds (the riskiest segment with the lowest credit ratings), and looking at components like distress, volatility and access to funding.
- Meanwhile, an index of Treasury market volatility is just shy of its COVID high; and one index of investment-grade bond market distress is at June 2020 levels.
The bottom line: Rates are rising rapidly — with no end in sight — and recession expectations are mounting. Credit stress is unlikely to recede any time soon.