Tag: economy

Bond Spreads

Bond spreads are an important indicator of risk assessment.  We typically like to assess the spreads between rated corporate debt and the 10-year rate. With the risk-free rate (the 10-year coupon) already at rock bottom, and the market-risk spreads (the difference between the risk-free rate and the nominal rate of interest on bonds) historically low, this was driving the cost of debt capital to record lows.  When the coronavirus hit, the spreads jumped dramatically, by about 200...

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The coronavirus is a black swan event but is pointing out several fundamental economic issues. First, even with the recent market selloff, the market is trading at historically high multiples. Second, the Fed is out of weapons – the Federal Funds rate is 1.75, the ten year is 0.52% – rates are rock bottom, and going lower won’t juice the economy. Monetary policy will have to give way to fiscal stimulus. Third, I believe we will see a widening spread between corporate debt...

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