We believe part of the spread differential is the anomalistic effect of the Treasury debt buyback program. But, it's not the total explanation. Credit quality throughout the entire financial system is deteriorating as corporate earnings and cash flows contract. Prices in the high yield market are plummeting. Although defaults are rising, they do not constitute the entire rationale for price degradation.
Liquidity is the culprit.
Fear is in the air. It's always been our contention that bond money and credit money is anticipatory. Stocks can be supported by hopes and dreams, but bond and credit products are solely supported by cash flows. It's not that bond money isn't emotional, after all bond managers and credit lenders are human beings. It's just that bond research is or should be most intently focused on cash flow.