Since widening at the end of 2018, credit spreads on corporate bonds are again tightening.
Some believe that, since credit usually leads equities and the economy, when there’s a divergence between the performances of credit and equities, like now, credit markets are right and stocks are wrong about the economy.
Here’s the deal:
Investors who are concerned about growth and equities would often flee to the safety of Treasuries. But that debt is now offering little yield- while also providing duration risk due to quantitative tightening and funding of the national debt.
So, there are good reasons to not own Treasuries with duration.
As a second option, investors are buying corporate debt, where they see debt, in general, as less risky than equities and as somewhere they can obtain yield.
Thus, if you’re using tight credit spreads as an economic indicator, to show that the economy is strong, you’d be wrong. In their blind and desperate searches for yield, investors are disregarding risk.
If your waiting for the yield curve to invert to prove a forthcoming recession, you’d also be wrong. There is too much government intervention in fixed income markets, compounded by investors’ fears of such government intervention eating principle. Thus, the yield curve may never invert before the next recession- meaning that the yield curve, like corporate bonds, are faking you out.
For, perhaps, the first time, investors can’t rely on bonds and credit to tell them where the economy is going. Stocks may be a better indicator this time. Yes- this time it may be different.
Corporate credit spreads will widen … one day … suddenly … as investors flee to cash, and as economic weakness grows- and the yield curve may have never properly warned anyone.
Neil S. Siskind, Esq., President
The Siskind Law Firm
Neil Siskind is the Founder & Chairman of The Fatherhood Assignment
Learn more at: http://www.neil-siskind-the-fatherhood-assignment.org/
Neil Siskind is the Conservator of the Neil S. Siskind Nature Preserve
The Neil S. Siskind Nature Preserve is over 8 acres of environmentally-pristine waterfront land in a magnificent setting along New York’s majestic Hudson River. The Preserve includes a variety of species of animal and plant life, and is a precious example of the thoughtful maintenance of New York’s priceless open spaces. The land’s uses are limited to outdoor recreation such as hiking and climbing, and the study of ecology, nature and land use. The Neil S. Siskind Nature Preserve allows for the intelligent contemplation of our valuable natural resources and the most effective ways to maximize them and keep them protected.
Neil Siskind, Founder, “National Fatherhood Day” – March 29th
To encourage recognition of the needs of boys and girls who are living without fathers or father-figures in their lives.
Read about the non-profits and charities whose missions Neil Siskind supports and promotes: www.neilsiskindsupports.com
Caring is Free®
You can read what clients and associates say about Neil Siskind at: http://siskindlawfirm.com/neil-siskind-bio/.
Neil Siskind’s Volunteer Work:
– Memorial Sloan Kettering Cancer Center, Volunteer
– Memorial Sloan Kettering Cancer Center, My Fundraiser- Help Neil Siskindhelp children with cancer to be more comfortable: http://mskcc.convio.net/site/TR?px=3182108&fr_id=2632&pg=personal
– Make-A Wish Foundation- Help Neil Siskind make sick children’s wishes come true by creating your own fundraiser: Neil-Siskind/Help-Make-A-Child-Smile.htm
– DonorsChoose.org- Donate to one of my needy public classrooms: http://www.donorschoose.org/NeilSiskindGiving
– Champion Children– We seek to inspire people through stories of children who have overcome challenges: http://siskindlawfirm.com/neil-siskind-champion-children/
Neil Siskind’s Pro Bono Work:
– Saving Senior Citizens- Protecting New York’s senior citizens from fraud and financial abuse www.savingseniorcitizens.com
– Senior FreeStart Business– Pro Bono: We seek to help put senior citizens in the right direction so that they can face the challenges of the modern economy: http://siskindlawfirm.com/free-start-business/
– Veteran FreeStart Business– Pro Bono: We seek to help put Iraq and Afghanistan war veterans in the right direction so that they can face the challenges of the modern economy: http://siskindlawfirm.com/free-start-business/
– In development: The Neil S. Siskind School of Hope: A free school to teach inner-city youths the skills of entrepreneurship and importance of economic self-sufficiency.
Neil Siskind’s Government Work:
– Suffolk County District Attorney’s Office, Boston, MA, 1994, Intern
– Office of Senator Christopher J. Dodd, Newington, CT, 1992, Intern
– Hartford County Department of Probation, Hartford, CT, 1991, Intern
Neil Siskind’s Community Assistance:
Financed & operated a legal clinic providing low-cost legal services to struggling Long Islanders during the recession to help clients resolve debt, organize finances, and launch new businesses.
Neil Siskind’s Professional Curriculum Vitae: http://neilsiskind.com/
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