Credit spreads on toast

opinion

by Fayaz Hussain

April 1, 2026

Like a piece of buttered toast perched on a plate on the way back from a breakfast buffet, the global economy is in a precarious situation. Stock markets are going up and down like an adolescent’s mood and we do not need to talk about oil prices. Spare a thought for manufacturers planning production for the years ahead, the companies that supply them or analysts trying to forecast deliveries.

Up until the 2008 global financial crisis many people thought that business jet deliveries were roughly correlated with the S&P 500 large cap equity index. The two were not linked. Equity markets bounced back, aircraft orders and deliveries did not. There was also no link between corporate earnings and demand. This led to what analysts at Citi dubbed the lost decade. Citi argued that over-deliveries had created a supply overhang.

Rather than focusing on equities, if you want to predict deliveries in two years you should focus on bonds. Most specifically credit spreads, the difference between two bonds with similar maturities. In this case the spread between a group of option-adjusted high-yield (formerly known as junk) corporate bonds and US Treasuries.

CJI analysis shows that if credit spreads rise by 1% (which is a significant jump) in a year you will see 27 fewer aircraft deliveries in two years’ time. This has held every year since 2000. The so-called Black Swan event of 2008 skews the trend, but it still works. The correlation between credit spreads and deliveries is minus 0.6 if you like your statistics.

Credit spreads are popular with equity analysts because there is a strong correlation between rising bond spreads and falling stock markets. Investors trust the US government to repay debt, so the spread measures how concerned investors are about companies failing and not repaying them.

We have used the ICE BofA US High Yield Index Option-Adjusted Spread (catchingly known as BAMLH0A0HYM2 if you want to look it up) which is a popular recession indicator (particularly the Federal Reserve Bank of St Louis, one of our favourite FEDS).

The index moved above 5% before recessions in 1991, 2001, 2008 and 2020 as investors became concerned about both corporates defaulting and liquidity.

It makes sense that this index provides a good guide. Companies that are worried about paying back their debt do not place orders for new business jets.

When credit spreads fall significantly, and financial market conditions are good, you can also forecast an increase in deliveries in two years’ time. Sheila Kahyaoglu, equity analyst at Jefferies, says that business jet demand is correlated more closely with capital markets activity – such as IPO volumes – than with broader equity market performance. There is a strong causal (not casual, if you are reading quickly) correlation between tighter credit spreads and IPOs. Even strong performing companies tend to delay floating during tight financial markets.

We are not saying this measure is perfect. Every downturn is different and the next may not be picked up by credit spreads. The main issue that there is not a lot of business jet data. Manufacturers delivered 854 business jets in 2025 and will likely ship around 900 this year. Airbus delivered 793 commercial aircraft on its own. Honda typically delivers about 14,000 cars every day (it delivered 12 HondaJets in 2026).

Let’s assume that the CJI Credit Spread rule holds, so what is happening to credit spreads now? Speculative grade spreads have risen from 2.83% at the start of 2026 to 3.17% at yesterday’s markets closed. If the ICE BofA US High Yield Index continues going up and ends the year above 3.83% you can expect 27 fewer deliveries in 2028.

That would work out about 875 aircraft, so slightly more than 2025. We can just hope it does not break the 5% recession warning line and that the plate gets put down. Toast falling from a table is statistically most likely to land buttered side down. We can only hope that it is tied onto the back of a cat.