GOLDMAN: Credit Spreads Are Implying A Recession, And MASSIVE Monthly Job Losses

A piece from Goldman credit strategist Dominic Wilson looks at what current credit spreads are saying about the prospect of recession around the world.

As several people have noted over the past several weeks, the current spread between corporate bond yields (of various flavours) and Treasuries is definitely in recession territory.

In fact, jumps like this are basically always associated with recessions.

credit spread

Photo: Goldman Sachs

It’s even worse if you look at sub-sectors, like financials.

Check this out. Current spreads for financial debt are consistent with an economy that’s adding shedding 300K per month.

credit spread

Photo: Goldman Sachs

What’s all this tell you: Well, perhaps things are going to get very bad.

On the other hand, this could just mean that credit has succumbed to a momentary panic (perhaps due to flashbacks to 2008) that have caused markets to go too far out of reality.

Even looking at that top chart, the jump isn’t THAT big, and if you notice, historically, the big yield spike has happened once the recession has already began, which undermines the idea that credit is particularly predictive.

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