See M. El-Erian last articles about credit quality erosion.
US market has near 5 trillion of A grade and BBB bonds.
Economic shock may cause downgrade of these bonds to junk levels which will launch sell-off of these 5 trillion papers.
So we take Ishares quality bonds ETF which includes only AAA bonds (QLTA) and deduct from it performance of Ishares ETF which buy IG bonds near junk levels when managers emphasize positive prospects of emitents (FALN).
Quality minus near junk index.
When indicator increase it (!)may tell about downgrades of BBB bonds to junk levels.
US market has near 5 trillion of A grade and BBB bonds.
Economic shock may cause downgrade of these bonds to junk levels which will launch sell-off of these 5 trillion papers.
So we take Ishares quality bonds ETF which includes only AAA bonds (QLTA) and deduct from it performance of Ishares ETF which buy IG bonds near junk levels when managers emphasize positive prospects of emitents (FALN).
Quality minus near junk index.
When indicator increase it (!)may tell about downgrades of BBB bonds to junk levels.