Credit Risk Will Only Grow So Long as The 10 YR Yield Remains Elevated
I don’t see the economy bouncing back in real terms so long as the 10-year Treasury yield remains elevated. The 10YR is the lynchpin of the U.S. economy. Should we see the 10YR cross a 5% yield, the economy will slow further.
A 4%+ 10YR yield means that credit is not cheap. Think about a small or mid-sized business that had a revolving credit line at 1% in 2021, but today pays interest at 10-12%. Many of those companies can’t survive the current rate environment. I see or hear of at least one local businesses per month that shut its doors in 2024 because it could not afford to pay higher interest when revenues did not grow commensurate with interest expense.
This is why bankruptcy filings continue to climb: HERE. Credit risk will grow so long as the 10YR yield remains elevated.
