Corporate Bonds Pass An Ominous Milestone
Jesse Felder | Jan 31, 2016 12:19AM ET
The spread between the yield on corporate bonds and that on Treasuries passed the 2% mark last Wednesday for the first time in over three years.
In the chart above I’ve annotated with red vertical lines the prior two occasions when spreads widened to this degree for the first time in at least two years. Notice that each of the two prior occurrences led to painful bear markets and recessions.
Now this indicator alone isn’t sufficient evidence that another painful bear market and concomitant recession are on their way. However, when you pair it with the all the other data out there, it’s confirmation of the growing probability of both.
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