Credit Stress (IEF/LQD)
Credit healthy: IEF/LQD z-score at -1.41σ — spreads at a relative low (risk-on). Median 1 year forward: +15.0%. Risk-on: credit is calm — supportive backdrop for new highs.
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Credit-spread risk gauge from the IEF/LQD ratio (Treasuries vs investment-grade corporates). Widening spreads (high z-score) are a risk-off warning that has led equity drawdowns; a low z-score = credit healthy / risk-on.
- 0 signals since 2003-01-01.
- Credit healthy: IEF/LQD z-score at -1.41σ — spreads at a relative low (risk-on). Median 1 year forward: +15.0%. Risk-on: credit is calm — supportive backdrop for new highs.
When to run this study
Run daily. Gauges credit-market risk via the IEF/LQD ratio (Treasuries vs investment-grade corporates). A high positive z-score = credit spreads widening = risk-off warning (the COVID/2022/2025-tariff/2026-correction setup). A low/negative z-score = credit healthy = risk-on, which has more often preceded new highs.
Historical results
Forward SPY returns by credit-stress band
| Credit-Stress Band (IEF/LQD z) | N (days) | 1M Win% | 1M Med | 3M Win% | 3M Med | 6M Win% | 6M Med | 1Y Win% | 1Y Med |
|---|---|---|---|---|---|---|---|---|---|
| <=-1σ | 2005 | 68.80 | 1.49 | 78.10 | 3.94 | 82.20 | 8.01 | 87.30 | 15.01 |
| -1..+2σ | 2807 | 67.50 | 1.61 | 71.70 | 4.32 | 78.40 | 7 | 83.90 | 14.75 |
| >=+2σ | 448 | 60.50 | 1.88 | 60.50 | 2.39 | 47.10 | -1.36 | 60.70 | 6.91 |