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Jonathan Levin

Corporate Bond Doomsayers Are a Little Premature

Even if a recession is coming, it could be a while until the trouble hits companies' ability to meet their debt obligations.

Not so fast.

Not so fast.

Photographer: Mark Makela/Getty Images

The credit-market bears may well be vindicated if the US enters a recession in the next year, but it’s too early to go full-scale Armageddon with predictions about corporate bond spreads.

For all the economic headwinds, US corporations started the year from a position of extraordinary financial strength thanks to opportunistic refinancing in 2020 and 2021 and strong cash reserves accumulated during the pandemic. While clearly increasing from late 2021 levels, trailing 12-month high-yield default rates are still low for normal times, let alone recessions, and it could take several quarters for the defaults to start materializing in significant numbers.