No Early-Warning Signs of a Recession

Have you heard the expression, “Watch what people do, not what they say?” That’s important these days when it comes to the economic outlook.

Some people are “saying” the word recession like it’s a foregone conclusion. But let’s take a step back and look at what people are actually “doing.”

The chart shows that the total return an investor would expect to receive from a high-yield corporate bond has been falling since early April.

That’s not what you would expect to see if a recession were on the horizon. When markets anticipate an economic downturn, the risk of default on high-yield corporate bonds tends to increase. The reason is simple—investors demand higher yields to compensate for the additional risk.

So, while there is much recession chatter, the high-yield market says, “Watch what we do.”

It’s important to remember that the outlook for the high-yield corporate bond market can change quickly, just like it did in early April when the total return figures started to trend lower. 

But the moral of the story is important! Be careful listening to people who push economic ideas without the data to support their conclusions. Often, the best approach is to stay focused and disciplined and tune out the noise during periods of uncertainty.

^{1. Fred.StLouisFed.org, April 24, 2025}