With all of the concerns about a looming recession over the last year, a curious feature of the financial markets has been the fact that high-yield credit spreads have remained exceptionally tight. These spreads are always a good barometer of the macroeconomic environment, and so far they have been the dog that hasn’t barked. That this is likely to remain the case seems doubtful, and in this Economics Weekly we look at why spreads have been so low and why they are likely to widen in the coming quarters.

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Richard de Chazal, CFA, is a London-based macroeconomist covering the U.S. economy and financial markets.