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The market has stopped pricing credit risk.

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SPY’s sensitivity to wider high yield spreads is now the shallowest in a year.

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Quant Insight’s MFERM model shows SPY’s credit beta at -0.355, a +2.1σ reading versus its own trailing one-year history.

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Plain English: equities are behaving as if credit risk does not really matter.

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That usually happens after a strong run.

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When we sort history by SPY’s credit sensitivity, the pattern is clear:

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• The shallower the credit beta, the stronger the trailing year
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• But the forward year gets weaker
  
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• The average forward 1-year return falls from +22.6% in the deepest credit-beta regime to +10.4% in the shallowest

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• The chance of a negative year rises from 4% to 26%

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That does not make this a sell signal.

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The left tail has thickened.

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That is the important point.

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Markets are not obviously priced for a bad outcome. They are priced as if the bad outcome is unlikely to matter.

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History says that is when fragility builds.

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The lesson from Qi’s model:

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The best of the easy run may be behind us.

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Not because equities must fall.

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But because the market is now carrying credit risk it is not being paid to carry.

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For investors, that argues for owning convexity rather than cutting exposure outright.

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The median outcome can still be fine.

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The tail is where the risk has moved.

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