Part 8/9:
Evidence from previous crises demonstrates that once certain thresholds of bad data—such as negative payrolls and declining GDP—are reached, the risk for dramatic sell-offs skyrockets. Thus, while corporate credit spreads might seem benign at first blush, they are misleadingly narrow and indicative of excessive risk acceptance across the spectrum.
Conclusion: A Cautious Approach Needed
The corporate credit market is in a precarious position, characterized by a cocktail of low-risk premiums and overabundance of complacency. While the current environment does not yet exhibit traditional recession symptoms, the underlying economic indicators paint a grim picture.