(Bloomberg) -- A measure of credit risk rose on Wednesday to the highest level since November 2020 after Federal Reserve Chairman Jerome Powell said the central bank was ready to raise interest rates in March and may continue to hike to tackle inflation.
Most Read from Bloomberg
A Nor'easter Approaching New York Risks Becoming a Bomb Cyclone
Mark Zuckerberg's Stablecoin Ambitions Unravel With Diem Sale Talks
Stocks Drop, Yields Jump on Hawkish Powell Signals: Markets Wrap
Astronomers Spot Never-Before Seen Object at 4,000 Light-Years Away
Stock Rebound Fails and Futures Plunge on Earnings: Markets Wrap
The cost of guaranteeing the debt of a basket of investment-grade companies against default jumped as much as 1.9 basis points to 60.9 basis points in the market for CDX.NA.IG credit derivatives. In the high yield market, a basket of junk credits saw its price decline to about 106.9 cents on the dollar, the lowest level since November 2020, according to the CDX.NA.HY index.
While CDX reacted quickly to the Fed's moves, "the bigger fallout in credit could be to come," said Dominique Toublan, head of U.S. credit strategy at Barclays Plc. With bond yields broadly rising, "we will pay careful attention to the fund flows in the coming days to see if this causes outflows."
Wednesday's market moves represented a reversal from earlier in the session, when the cost of protecting the investment-grade basket had fallen as much as 2.5 basis points.
The big intraday reversal is a sign that prices in credit markets are swinging more wildly than they had before, said Travis King, head of U.S. Investment-Grade Corporates at Voya Investment Management.
"You'll probably see more IG investors using CDX to hedge positions or make tactical calls," he said.
Most Read from Bloomberg Businessweek
Market Turmoil Is Ultimate Test of What's Real and What's Not
What Happens When Russian Hackers Come for the Electrical Grid
The Tragicomedy of Boris Johnson Enters Its Final Act
Pharmacy Workers Are the Pandemic's Invisible Victims
The Charismatic Developer and the Ponzi Scheme That Suckered San Diego
©2022 Bloomberg L.P.