Making Financial Headlines · Page 2
Bond Market Sends Stocks a Warning, With No Promise of Perfect Timing
· New York time
A signal from the corporate bond market has historically preceded major drawdowns in the S&P 500, according to MarketWatch. The warning puts credit investors and stock investors in the same conversation, even if their priorities are not identical. Bondholders focus heavily on the likelihood of being repaid, while shareholders have a claim on a company's future profits. Changes in the market for corporate debt can therefore provide a different view of business risk from the one reflected in stock prices. A historical relationship, however, is not a schedule for the next decline. For companies that borrow, conditions in the bond market can affect the cost of financing. For people holding broad stock funds, the signal is one more reason to pay attention to the financial system beyond the index number that appears on a phone screen. The appeal of an indicator is that it offers a neat warning before an untidy event. The inconvenience is that history supplies patterns rather than guarantees. Stock traders may prefer the market's louder characters, but the bond market has a habit of making its presence felt without needing a mascot. This time its message is less a prediction carved in stone than a reminder that the quiet table also gets a vote.
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