| "The Canary in the Coal Mine" It's a complicated sounding term, but it's actually a relatively simple concept. Investment grade credit spreads measure the difference between the yield on high quality corporate bonds and the yield on Treasury bonds. Think of it this way… lending your money to a corporation, even a high quality one, is a lot riskier than lending it to the U.S. government. At the end of the day, the government can print money to pay you back. The corporation cannot. For this reason, credit spreads tell you a lot about the financial system's risk appetitive. When credit spreads rally, it means the system is doing well. And when they collapse, it means there's panic in the air. This is especially true now that the Fed has announced it will buy investment grade corporate debt for the first time in history. In this sense, credit spreads on investment grade corporate debt have become "the canary in the coal mine" for this Fed intervention. Note in the below chart that investment grade credit spreads bottomed BEFORE stocks did. Investment grade credit spreads bottomed March 19. Stocks bottomed March 23.  So if these same credit spreads collapse now, despite the Fed buying them, then we know the Fed has failed to prop up the system and we're going to see an even larger crash. A Breakdown Here Could Incite Market Panic With that in mind, yesterday's breakdown was extremely dangerous for the credit markets. As you can see in the chart below, the drop brought credit right to the line of CRITICAL support. If we see a breakdown from here, then it's HIGHLY likely the system will go back into a panic and we will see new lows for stocks.  This is the only chart I'm watching right now. I've got the rest of the world on mute. You should do the same. Best Regards, 
Graham Summers
Editor, Money & Crisis | 
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