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CHART OF THE DAY: Junk bonds are the canary in the coal mine

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The recent surge in coronavirus infections is causing renewed concerns about economic growth and is likely exerting an indirect effect on the bond market, increasing the yield on low-rated/high-yield corporate bonds relative to the guaranteed yield of U.S. Treasury bonds.

Concerns over economic growth are showing up in the high-yield debt markets.

When the market becomes concerned about the growth and viability of corporations, it requires a risk premium on securities that are below investment grade — what were once referred to as “junk bonds” — and investors require a higher rate of return to hold those bonds.

As the coronavirus continues to spread, the risk premium has increased by 50 basis points in the just the last week.

For more information on how the coronavirus is affecting midsize businesses, please visit the RSM Coronavirus Resource Center.

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About Joseph Brusuelas

@JoeBrusuelas

Joe Brusuelas, “chief economist to the middle market,” is the preeminent voice championing issues and policies facing midsize companies in the United States and around the world. An award-winning economist, Brusuelas has more than 20 years’ experience analyzing U.S. monetary policy, labor markets, fiscal policy, international finance, economic indicators and the condition of the U.S. consumer.

A member of the Wall Street Journal’s forecasting panel and the UCLA Anderson School of Management's Board of Directors, Brusuelas regularly briefs members of Congress and other senior officials regarding the impacts of federal policy on the middle market and the factors by which middle market executives make business decisions. He also frequently offers his insights on the U.S., Canadian and global economies in the financial media. In 2020, he was named one of the 100 most influential economists by Richtopia. In December 2023, Brusuelas and the economics team were recognized on Bloomberg's list of Best Bond Forecasters after correctly predicting where the benchmark Treasury would end the year.

Before joining RSM in 2014, Brusuelas spent four years as a senior economist at Bloomberg L.P. and the Bloomberg Briefs newsletter group, where he co-founded the award-winning Bloomberg Economic Brief. Earlier in his career, he was a director at Moody's Analytics covering the U.S. and global economies for the Dismal Scientist website. He also served as chief economist at Merk Investments L.L.C. and chief U.S. economist at IDEAglobal.

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