Another Bullish Sign For the Economy Corporate Bond Spreads

Discussion in 'Economics' started by Stock Trader Lance J, Jul 23, 2017.

  1. Corporate bond yields spreads are falling which suggests there is a low default risk.

    corporate-bond-yields-chart.png

    Corporate bond spreads are at there lowest point since 2008. This suggests that markets are pricing in a very low risk of default which is bullish for the economy.
     
    DB_sezwhat likes this.
  2. eurusdzn

    eurusdzn

    There was much less risk in the spread in 2007.
     
  3. The difference is that today they are still dropping as opposed in 2007 when they began rising sharply.
     
  4. sle

    sle

    It would be an interesting study to see how well does the default probability implied by the N-year average credit spread compare to the realized default rates over that period, i.e. P(t0, tM| implied) - R(t0, tM | actual). The studies I've seen almost always use ratings and ratings transitions, but I'd love to see a cohort study that uses the implied default probabilities as a predictor.
     
    Last edited: Jul 23, 2017
  5. I think I have seen stuff like this somewhere. although I recall it only very dimly.

    The only thing I can find off the top of my head is this:
    https://www.imf.org/external/pubs/ft/wp/2006/wp06104.pdf
     
  6. Well, this may mark the top:
    *MANDATE: GREECE EUR BENCHMARK 5Y BONDS
     
    sle likes this.
  7. Joe_D

    Joe_D



    Lance,

    Agree since 2008, however check this out, tell me what you think, thank you

    Larger perspective with monthly data since 1966 major low, uptrend has all higher highs/higher lows and even by Dow Theory concept application, the Primary dominant trend is UP, UP.
     
  8. it's kinda hard to go bankrupt with the kind of interest rates we have these days.
    Even technical default is hard given the weird covenant less securities that have been issued recently.
    you can still have earnings contractions due to real economic contractions.