High-yield spreads are the widest since April

The option-adjusted spread on the ICE BofA US High Yield index closed at 2.93 percentage points on 25 September. It was 2.66 on 21 September and 2.60 on 28 August, its low for the year. The last close this wide was on 13 April.

The spread is the extra yield that investors ask for to lend to companies with low credit ratings instead of to the US government. “Option-adjusted” means that the measure takes out the value of the right that many issuers have to repay their bonds early. It rose 0.27 points in four trading days, most of a move that began at the end of August.

Calm through the oil shock

Spreads stayed calm through the jump in oil and the Fed’s increase. The spread was 2.76 on 15 September, the day spot Brent peaked at $130.80 a barrel, and 2.70 on 16 September, the day the Fed raised rates. The widening came in the week that Treasury yields reached their highs. The 10-year yield closed at 5.18% on 24 September.

That fits the pattern of the year. The spread’s high for 2026 was 3.46 points on 30 March, in the first weeks of the oil shock. It then narrowed for five months, to its low in late August, even though oil prices rose again in September. Credit investors have treated dear oil as a problem for oil buyers, not for the average borrower. Higher interest rates are a problem for every borrower.

The weakest borrowers moved most

The index average hides a split by rating. Between 21 and 25 September, the spread on BB-rated bonds, the best quality in high yield, rose from 1.53 to 1.76 points. Single-B bonds went from 2.70 to 3.00. The spread on CCC-rated bonds and below, the riskiest, rose from 10.77 to 11.28 points, its widest since April 2025.

For the lowest-rated bonds, the stress started earlier. Their spread was 9.50 points on 27 February and 10.26 on 28 August, when the index as a whole was at its low. Even at the March high for the index, the CCC spread was 10.20, below where it is now.

That is what higher rates do. The weakest companies usually have the most debt to refinance and the least room to pay more interest, so they feel higher yields first.

Rates and spreads together

A high-yield company borrows at the Treasury yield plus the spread, and both rose in the same week. The effective yield on the index, which adds the two, was 7.87% on 25 September, up from 7.02% on 28 August. It was last that high in April 2025.

Investment-grade spreads moved much less, from 0.77 to 0.81 points between 21 and 25 September. Even BBB-rated bonds, the lowest tier of investment grade, went only from 0.95 to 0.99. For the strongest borrowers, the rise in Treasury yields matters far more than the spread.

Why it matters

Even now the high-yield spread is not wide by recent standards. Over the last three years it was wider than 2.93 points on 57% of trading days, and its high in that period was 4.61 points on 7 April 2025. Its low was 2.59 points on 22 January 2025, so the August low of 2.60 was close to the tightest in three years. If Treasury yields keep rising, that leaves room for more.

The risk is in the mix. When the average is calm and the lowest-rated bonds are not, investors are sorting the companies that can live with higher rates from those that cannot. The Fed meets next on 27 and 28 October. Until then, the 10-year yield is the number that high-yield investors will watch most closely.