Widening of CDS Spreads Leads To Stock Underperformance [Study]

When a company’s credit default spread widens, stock investors should watch out, particularly if a company is experiencing the second spread widening. This is the conclusion of a new research paper from S&P Capital IQ.

The premise of the paper, “Lenders Lead, Owners Follow – the relationship between credit indicators and equity backtested returns,” is that equity investors could do well to pay attention to certain key fixed income signals in a company.

CDS spreads: Performance of a company’s fixed debt offerings

The performance of a company’s fixed debt offerings can often be an indication of trouble ahead, as stocks sometimes underperform leading...