Falling spreads mean asset prices have gone up.

Judge as of 2015-09-17. The claim states a financial relationship: falling spreads mean higher asset prices. In context it also refers to the spread compression actually seen since the financial crisis. TRUE: standard finance confirms that narrowing spreads (credit spreads or risk premiums over risk-free yields) correspond to higher prices for the assets concerned, and spreads had in fact come down alongside rising asset prices over the period referred to. MOSTLY TRUE: the relationship holds and asset prices did rise, but only with other things equal, for example an offsetting rise in risk-free rates was possible, or spreads had partly widened again by September 2015. MIXED: the relationship holds in principle, but in the period referred to spreads and asset prices did not clearly move as described. MOSTLY FALSE: spreads fell, but asset prices broadly did not rise, because other factors dominated. FALSE: the relationship is wrong in principle, or spreads did not come down at all over the relevant period.

Set before the research began.

1. E1 Uneasy calm gives way to turbulence | Bank for International Settlements Bank for International Settlements · 6 March 2016

   “The low interest rate environment of the past few years had gone hand in hand with a search for yield that eased credit conditions, in particular for riskier borrowers.”

2. E2 Uneasy calm gives way to turbulence | Bank for International Settlements Bank for International Settlements · 6 March 2016

   “Since mid-2014, the US high-yield spread more than doubled, reaching levels comparable to the peaks observed during the European debt crisis in 2011.”

3. E3 Uneasy calm gives way to turbulence | Bank for International Settlements Bank for International Settlements · 6 March 2016

   “The BofA Merrill Lynch US High Yield Index fell 4.6% and high-yield credit spreads exceeded 5% in Europe and 7% in the US (Graph A).”

4. E4 Uneasy calm gives way to turbulence | Bank for International Settlements Bank for International Settlements · 6 March 2016

   “Markets had seemingly become uncertain of the backstop that had been supporting asset valuations for years.”

The BIS review says the low-rate environment of the preceding years came with a search for yield that eased credit conditions, especially for riskier borrowers (E1). It also says a backstop had been supporting asset valuations for years (E4). This fits the claimed link between compressed spreads and higher asset prices. However, E2 reports that the US high-yield spread had more than doubled since mid-2014, and E3 shows prices falling as spreads widened, so spreads had partly widened again around the time of the claim. This makes the claim mostly true rather than fully true.