What Happens to BBB Credit Spread When the Convex Recession Probability Index Spikes?
What happens when the Convex Recession Probability Index signals elevated recession risk? Composite of leading indicators, yield curve, credit spreads, and labor data.
How BBB Credit Spread Responds
Scenario Background
The Convex Recession Probability Index aggregates multiple leading indicators (yield curve, jobless claims, credit spreads, leading economic index, ISM Manufacturing) into a single probabilistic signal. When the index rises above 50%, it indicates that a majority of its component signals are flashing recession warnings simultaneously. This composite approach reduces false positives from any single indicator while preserving signal strength when multiple metrics align.
Read full scenario analysis →Historical Context
The index has retroactively crossed 50% before the 2001, 2008, and 2020 recessions, with median lead times of 5 to 7 months. The 2022-2024 readings were elevated for an extended period without producing a conventional recession, reflecting the unusual post-COVID cycle where labor market strength offset signals from rates and credit. The 2008 episode saw the fastest ascent, with the index rising from 35% to 85% over six months as credit markets seized. Historically, readings above 70% have been c...
What to Watch For
- •Index rising above 60% with broad component confirmation
- •Yield curve re-steepening after prolonged inversion
- •Continuing claims rising above 1.8M
- •HY spreads widening past 450 basis points
- •ISM Manufacturing below 45 for two consecutive months
Other Assets When the Convex Recession Probability Index Spikes
Other Scenarios Affecting BBB Credit Spread
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