“This less-followed indicator has a good enough relationship with recession risk during the last 50 years that it should not be ignored,” warned Jim Paulsen, Leuthold’s chief investment strategist, in a note to clients this week.
Having warned last week that “it’s been too quiet, for too long,” Paulsen now sees the potential catalyst for the market’s next move as low-rated investment-grade credit spreads blow out beyond an historically crucial level.
As Bloomberg reports, for the first time since just prior to the 2007-2009 recession, premiums on the lowest-rated tranche of investment-grade U.S. corporate bonds have risen to 2 percent after being below that level, according to data compiled by the Minneapolis-based research group.
The analysis looks at the gap in yields between corporate debt rated Baa by Moody’s Investors Service and those on 10-year Treasuries.
“We are not sure why a 2…