Watch What People Do, Not What They Say

Have you heard the expression, “Watch what people do, not what they say?” This remains applicable in the economic we are navigating today.

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 above shows that the effective yield 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 and Investors typically demand higher yields to compensate for the additional risk.

While recession talk remains widespread the high-yield market is sending a different message - one grounded in action rather than speculation. 

It's crucial to remember that the outlook for high-yield corporate bonds can shift rapidly, as seen in early April when the yields started to trend lower. 

The key takeaway is this: Be cautious of narratives driven by opinion rather than data. In times of uncertainty, maintaining focus and discipline - while filtering out the noise - often proves to be the most effective strategy. 

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

^{*Probabilities are based on assumptions and are subject to revisions. Financial, economic, political, and regulatory issues may cause the actual results to differ from the expectations.}