There is an inverse relationship between the spreads of the yields of low-grade bonds and Treasury bonds and the economy. The relationship is very simple. Rising spreads are followed by weaker business activity.
Why? Because rising spreads reflect rising financial risk and rising financial risk makes borrowing more costly for business and consumers. And the economy stalls. This is exactly what is happening now. I will show you the evidence in the next issue of The Peter Dag Portfolio.
Bottom line. The economy cannot recover until spreads decline in a visible way.
More, much more when you subscribe to The Peter Dag Portfolio on https://www.peterdag.com/.
George Dagnino, PhD
Editor, The Peter Dag Portfolio
Since 1977
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