The “junk spread” is abnormally low right now, and that elevates the risk of an imminent recession. The junk spread is the difference between the yield on corporate high-yield bonds and U.S. Treasurys of comparable maturities. This spread represents the extra yield that investors demand to compensate them for the additional risk of investing in junk bonds rather than Treasurys.
The spread currently stands at 3.5 percentage points, well below its average since 1997 of 5.4 percentage points, as shown in the chart above. That…
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