Our Q&As are emailed in our Saturday Morning Report, find the answer to this question below.
Hi MM Team I note your comments on the differing risk assessments of recession for equities vs bond credit spreads 33%v 9-12%. I am wonders how the %'s are calculated. I note that you have mentioned how the spreads are calculated from the risk free gov bond rate. Thanks for your words of wisdom and you continued excellent appraisals.
Hi James,
The 33% chance of a recession was quoted from analysts on Bloomberg, based on acceleration to the downside by US stocks. However, the current Bloomberg Recession Probability Forecast is 25% based on the latest monthly and quarterly surveys conducted by Bloomberg and from forecasts submitted by banks, i.e. its an analysts consensus view. This may well kick higher as fresh numbers cross the desks at Bloomberg.
Credit spreads are calculated by: Credit Spread = Yield on Corporate Bond−Yield on Treasury Bond; the greater the perceived market risk.
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