They are cracks more than crevices at this point, but the fissures are there. And they are becoming more widespread. Signs of financial (and economic) stress are on the rise. While generally still at historically low levels, they merit watchful attention as the Fed moves forward with an accelerated program of interest rate hikes.
Evidence of stress is emerging across the fixed income landscape: high yield spreads are rising, corporate bond yields have the most upside momentum since the financial crisis and mortgage rates are at their highest levels in over a decade.
We are already seeing the implications of this in the housing market. New single-family home sales have fallen 20% over the past year while homes for sale have surged 35%.
As stresses continue to build, we could see renewed interest in traditional safe haven assets (especially Treasury Bonds). Whether this period ends up being labeled a recession (formal or otherwise) is an open question. But the data increasingly point to a meaningful deterioration in economic conditions.
