As the yields on US high-yield ex-energy corporate bonds continue to rise, while credit spreads widen versus investment grade, some experts are starting to sound the alarm bells. The growing stress in lower-quality credit could signal increasing downside risks for equities, according to a recent chart from BCA.

The spread between high-yield ex-energy corporate bonds and investment grade bonds has been widening over the past year. This suggests that investors are becoming increasingly risk-averse and are demanding higher yields to compensate for the increased credit risk.

But what does this mean for equities? Some experts believe that the widening credit spreads could be a sign of trouble ahead for the stock market. If investors become too risk-averse, it could lead to a decrease in liquidity and an increase in volatility, which could negatively impact equity prices.

Of course, it’s important to note that correlation does not imply causation, and there are many factors that can influence the relationship between credit spreads and equities. However, this chart does suggest that investors should be cautious and monitor the situation closely.