Junk Is Sending A Signal

Skyrocketing yields suggest that the economy is weakening, and Fed tightening may be over

Investors are cheered by recent signs that the economy is starting to decelerate. Still, there remains a nagging worry that the Fed isn't quite finished with its monetary tightening. But a look at the corporate bond market suggests that the Fed is done with its task. Real corporate bond yields are at levels that in the past have never failed to decelerate the economy, corporate credit downgrades now outnumber upgrades, and the junk-bond market default rate is rising. Together, these factors indicate that the Fed's tightening campaign may already be nearing an end.

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