Credit Spreads | Wisdom, Wealth, and Wellness

Jonathan Satovsky
CFP®, ChFC®, CIMA®, CPWA®, CDFA®, DACFP

Good morning, good afternoon, good evening. Depending on the part of the world you’re in. This is Jonathan Satovsky of Satovsky Asset Management and on today’s episode of “Seeking Wisdom, Wealth, and Wellness,” I want to talk about credit spreads.

What are credit spreads?

Credit spreads are the difference between what the US government pays on the Treasury bills and bonds relative to what other people can borrow—corporations or individuals, whether it’s on mortgages, or whether it’s other foreign governments, or whether it’s businesses. And credit spreads are generally tight when the economy is humming. Everybody is confident everything is flowing, everything is working at a very, very robust pace. But when credit spreads widen, the difference between what someone is getting paid to buy a US treasury versus buying a corporate bond, as those spreads widen to 200 – 2,000% difference, instead of paying 4% for a treasury, you might need to pay 8, 9, 10, 11, 12% on a corporate bond.

Now the question is you have to assess your perception of that risk being priced. Is it really priced to default? So when spreads are really wide, people are pricing and expecting a recession, and it’s pricing in a recession, it’s pricing in very high default rates. Now if the reality of that business is default rates are less, then you’re getting a pretty good deal. So currently when credit spreads are really wide, you’re getting equity returns on investment-grade debt in some cases. So ponder that as you evaluate the risk-return not just of the equity markets, but pay attention to the debt side as well on your path to Wisdom, Wealth, and Wellness.

Have a great day.

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Video Recorded October 11, 2022
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Disclosures

This blog post is not intended to be, nor should it be construed or used as, an offer to sell, or a solicitation or offer to buy any securities or interests in any strategy offered by Satovsky Asset Management, LLC (“SAM”). SAM is a registered investment advisor with the Securities and Exchange Commission – for more information see www.adviserinfo.sec.gov. Please remember that different types of investments involve varying degrees of risk, and that past performance is not indicative of future results. Therefore, it should not be assumed that future performance of any specific investment or investment strategy (including the strategies recommended or undertaken by SAM) will be profitable. Market index information shown herein is included to show relative market performance for the periods indicated and not as standards of comparison. The market volatility, liquidity and other characteristics of SAM’s portfolio composition are materially different from the securities listed on public market indices. Market index information was compiled from sources that SAM believes to be reliable. No representation of guarantee is made hereby with respect of the accuracy or completeness or such data. Opinions are as of date of video and are subject to change. A copy of SAM’s current written disclosure statement discussing our advisory services and fees continues to remain available for your review upon request. SAM undertakes no duty to update information presented herein.

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