The bond market is signaling that the economy is not going to enter a recession anytime soon, according to DataTrek Research. You’ve heard about a hard landing of the economy and a soft landing of the economy.[0] A new economic concept is currently gaining traction.[0] This is termed a rolling recession, a sort of combination.[0] When one industry experiences a decline, the next one does as well; however, the economy remains stable and the job market is generally unaffected.[0]
Federal Reserve officials have raised interest rates eight times with the potential for at least two more rate hikes in 2023.[1] Despite this, the spread between corporate bond yields and US Treasuries is continuing to decline, signaling that the US economy is not on the verge of entering a recession in 2023 or 2024.
It is expected by many economic analysts that a “mild” recession will occur in 2023.[2] But the bond market suggests that the US economy won’t enter a downturn this year or next.
Bond traders’ risk appetite can be gauged by the difference between corporate bond yields and US Treasury yields.[3] In times of market uncertainty, spreads widen in order to compensate investors for the associated risks of future cash flows. As markets become reassured that profits are either steady or on the rise, the difference in yield tends to decrease.
The spread on the yields between those bonds has slipped to levels below the average seen in the five years before 2020, a time of relatively calm waters.[3] This suggests that the corporate debt market is no more worried about a sudden decline in corporate earnings than it was in a period of relative financial and economic stability.[3]
Is it possible to prevent a recession in 2020? It appears possible, though the odds still favour a brief and mild downturn.[4] The consensus is rarely correct, so it is important to remain aware of what is really happening in the bond market as it is a strong indicator of where the economy is headed.
0. “If you have to have a recession, make it a rolling one” The Business Standard, 9 Feb. 2023, https://www.tbsnews.net/bloomberg-special/if-you-have-have-recession-make-it-rolling-one-582618
1. “Economic outlook: Mild recession soon, national debt problems long term” Carolina Journal, 8 Feb. 2023, https://www.carolinajournal.com/opinion/economic-outlook-mild-recession-soon-national-debt-problems-long-term/
2. “America is facing a ‘rolling recession’ as experts say not all industries will be affected at once” Daily Mail, 10 Feb. 2023, https://www.dailymail.co.uk/news/article-11734121/America-facing-rolling-recession-experts-say-not-industries-affected-once.html
3. “Here’s why the US economy won’t fall into a recession this year or next, according to a key market signal” Business Insider India, 7 Feb. 2023, https://www.businessinsider.in/stock-market/news/heres-why-the-us-economy-wont-fall-into-a-recession-this-year-or-next-according-to-a-key-market-signal/articleshow/97698876.cms
4. “Odds against a Canadian recession are rising” Toronto Star, 9 Feb. 2023, https://www.thestar.com/business/opinion/2023/02/09/odds-against-a-canadian-recession-are-rising.html