Are We There Yet?

March 2019

We believe we're in the late expansion phase of the credit cycle. At present there seems to be an elevated risk of recession by market participants in the 2020-2021 timeframe. Our credit cycle model is based on eight key indicators which we’ve back-tested rigorously since the mid-1980’s: high yield spreads, 3 mo. /10 yr. Treasury curve, Senior Loan Officer Opinion Survey, CCC issuance, non-financial debt growth, profit growth, shareholder payout ratio and Fed policy. In prior down cycles (’01, ’08, ’15) our credit model flashed an average of six sell signals each time. Today our model is flashing four sell signals. We don’t expect a credit down cycle in the next 12 months despite recent market anxiety of one potentially occurring.

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