You’ve probably heard the expression, “Watch what people do, not what they say.” That’s especially relevant right now when it comes to the economic outlook.
Lately, the word “recession” has been thrown around so often that it can feel like a foregone conclusion. But instead of focusing on the chatter, let’s take a look at what the markets are actually doing.
One telling signal comes from the high-yield corporate bond market. Since early April, the expected total return on high-yield corporate bonds has been trending lower. That’s notable—because if the market were bracing for a recession, we’d typically see those yields rise, not fall. Why? When recession fears rise, so does the perceived risk of default, and investors usually demand higher yields to compensate.
In short, while recession talk is everywhere, the high-yield bond market is sending a very different message: “Watch what we do.”
Of course, the market can shift quickly—just as it did in early April when return expectations began to ease. But here’s the key takeaway: be cautious about reacting to headlines or opinions that aren’t grounded in data. Often, the best approach is to stay focused, disciplined, and tuned in to the fundamentals, especially during uncertain times.
1. Fred.StLouisFed.org, April 24, 2025