Hidden risks appear to be growing in US corporate bonds, a bellwether for the health of the economy. The yield on 10-year Treasuries fell below 2% last week, its lowest level since September 2008, as investors worried about rising inflation and higher interest rates. Credit markets send two classic signals: The first shows excessive risk taking, when companies pay very little above Treasury bonds—as in the late 1990s and 2007, and again today. Investor appetite for riskier bets means CFOs have been borrowing as much as possible without pushing their credit ratings into junk, meaning more bonds face being cut from investment grade in a downturn.
Hidden risks appear to be growing in US corporate bonds, a bellwether for the health of the economy. The yield on 10-year Treasuries fell below 2% last week, its lowest level since September 2008, as investors worried about rising inflation and higher interest rates. Investor appetite for riskier bets means CFOs have been borrowing as much as possible without pushing their credit ratings into junk, meaning more bonds face being cut from investment grade in a downturn.