Guggenheim Investments examines late-cycle fixed income dynamics, arguing that growing tail risks are underappreciated despite tightening financial conditions and rising rates. The piece challenges the reliability of traditional recession signals and highlights disconnects across credit markets, suggesting investors may be mispricing downside risks.
Fixed-Income Outlook Tail Risks Are Getting Fatter
Guggenheim Investments
Scott Minerd
Research
32 Pages
Key Takeaways
False Curve Signals: The 2yr–10yr Treasury spread narrowed to ~23 basis points, historically signaling recession within 12–18 months, though Guggenheim argues structural factors may distort this indicator.
Credit Market Divergence: A-rated corporate bonds show ~80 basis point curve steepness versus ~20 basis points for Treasuries, indicating materially different recession expectations across markets.
Tightening Financial Conditions: Investment-grade yields rose ~110 basis points year-over-year and ~75 basis points in 2018, reflecting increased borrowing costs and reduced liquidity late in the cycle.
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