Secrets of Finances and Payday Loans

The corporate bond market is a leading indicator of economic activity. However, its forecasting power is obviously not perfect, because – like equity markets – credit spreads sometimes predict recessions that do not occur subsequently. After the 1987 stock market crash, for example, credit spreads widened significantly. Asimilar observation could be made in 1998, following the LTCM hedge fund crisis and Russia’s default. Yet, both events were not followed by a recession. The spread widening rather mirrored increasing risk averseness of investors. In general, risk appetite or risk
aversion refer to market participants’ willingness and ability to invest in risky assets.