Recession Index vs HY Spreads
Convex Recession Probability Index (CVRP) aggregates yield curve + Sahm Rule + LEI + claims + credit spreads + NY Fed model into 0-100 scale. ICE BofA HY OAS (FRED BAMLH0A0HYM2) measures market-priced default risk.
Also known as: CVRP, Convex Recession Probability (CVRP, CRPI, recession probability, recession index) · HY Credit Spread (OAS) (HY spread, high yield spread, junk bond spread, HY OAS)
Why This Comparison Matters
Convex Recession Probability Index (CVRP) aggregates yield curve + Sahm Rule + LEI + claims + credit spreads + NY Fed model into 0-100 scale. ICE BofA HY OAS (FRED BAMLH0A0HYM2) measures market-priced default risk. April 2026: CVRP elevated (Sahm Rule triggered, yield curve normalized but still showing residual stress, LEI declining); HY OAS approximately 280bp (long-run average ~550bp; 25-year tights below 300bp). Combined: recession indicators flashing warnings + credit spreads pricing zero recession. Most divergent CVRP-HY relationship in recent history. Either credit complacent (will widen sharply) or recession indicators false-positive (will normalize).
The April 2026 Configuration
CVRP components April 2026: NY Fed yield curve probability 18.8% (declining); Sahm Rule TRIGGERED (3-month MA U3 4.3% above 3.5% trailing low); LEI six-month change -1.3% (improving from -7.6% early 2024); initial claims 225K (stable); HY OAS ~280bp (tight, contributing risk-on signal). CVRP net: elevated on labor/yield curve indicators, offset by claims + credit.
HY OAS: approximately 280bp (April 2026). Tightest range since 2007. Long-run average 550bp. 25-year low ~250bp (June 2007 pre-GFC).
CVRP-HY divergence: CVRP elevated but HY tight. Credit market positioning soft landing. Recession indicators positioning concern.
April 2026 reading: extreme divergence. Either credit market is complacent (will widen on recession arrival) or recession indicators are false-positive (will normalize). Cross-asset markets price scenario 2 (false positive). Position cautiously.
Historical precedent: similar setups 2006-2007 + 1999-2000 preceded HY OAS widening from sub-300bp to 1000bp+. Caution warranted but timing uncertain.
Long-Term Range and Recent Trajectory
HY OAS history: 250bp (June 2007 pre-GFC tight), 1971bp (December 2008 peak), 1083bp (March 2020 COVID peak), 879bp (November 2022 hiking peak), 280bp (April 2026 current). Range 250bp-2000bp.
2024-2026 compression: HY OAS tightened from 380bp (December 2023) to 280bp (April 2026). 100bp compression. Reflects: (1) economic resilience without recession, (2) Fed pause + easing room, (3) AI capex narrative supporting HY issuers, (4) low default rates ~3-4%.
Default rates: April 2026 trailing 12-month HY default ~3.5%. Long-run average 4.0%. Below average. Supports tight spreads.
CVRP trajectory: declined slightly from late 2024 peak as yield curve re-steepened, partial offset from Sahm Rule continued trigger.
Divergence widened 2024-2026: CVRP stable-elevated + HY tightened 100bp. Most divergent reading in modern history.
Historical Precedents: Past Episodes
Conditional Forward Response (Tail Events)
How HY Credit Spread (OAS) has historically behaved in the 5 sessions following a top-decile or bottom-decile daily move in CVRP, Convex Recession Probability. Computed from 1,287 aligned daily observations ending .
Following these triggers, HY Credit Spread (OAS) rises 0.85% on average over the next 5 sessions, versus an unconditional baseline of +0.06%. 128 qualifying events; HY Credit Spread (OAS) closed positive in 52% of them.
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Frequently Asked Questions
What is the April 2026 CVRP vs HY Spreads configuration?+
CVRP elevated (Sahm Rule triggered + LEI declining + yield curve normalizing). HY OAS ~280bp (tightest since 2007). Tight HY despite elevated recession indicators. Most divergent reading in modern history. Setup most similar to 2006-2007 (preceded GFC, HY widened from 250bp to 1971bp) + 1999-2000 (preceded dot-com, HY widened 540bp to 1100bp+) + 2019 (preceded COVID, HY widened 350bp to 1083bp).
Why are HY spreads so tight despite recession indicators?+
Three drivers: (1) Default rates ~3.5% (below 4% average) reflecting healthy fundamentals. (2) AI capex era ~0B+ annual sustaining HY issuer cash flows + reducing default risk. (3) Fed easing room reducing systemic risk. (4) Risk appetite intact (CRAI elevated). (5) Structural changes (services-driven economy + immigration labor expansion + fiscal support) reducing recession sensitivity. Either credit complacent or recession indicators false-positive.
What are historical HY widening precedents?+
2007: HY 250bp June to 1971bp December 2008 (+1700bp). 2000: HY 540bp to 1100bp+ October 2002 (+560bp). 2019: HY 350bp to 1083bp March 2020 (+730bp). 2022: HY 270bp December 2021 to 879bp November 2022 (+600bp). Average widening from sub-300bp tight + elevated CVRP to peak: 600-1700bp within 12-18 months. April 2026: HY 280bp + CVRP elevated matches setup. Risk material.
How is the divergence typically resolved?+
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