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EndGame Macro
These default rates are trailing 12 month figures for large corporate borrowers, the group with the most tools to avoid showing distress. They can refinance, extend maturities, negotiate covenant waivers, or slide problems into private credit vehicles that don’t register as defaults on these public datasets. Because it’s a 12 month rolling window, the line mostly reflects the last wave of defaults aging out of the calculation, not the current state of the credit cycle. In practice, corporate default data is usually 6 to 12 months behind reality, and sometimes as much as 18 months behind the earliest signs of stress.
Meanwhile, the parts of the system that crack first including autos, credit cards, student loans, and commercial real estate are all moving the other way. Delinquencies are rising. Office distress is climbing. Lower income borrowers and subprime consumers are feeling real strain. That’s the ground truth. The chart looks calm only because the pressure hasn’t reached the part of the credit market that shows up in those numbers but it’s already visible everywhere else.
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These default rates are trailing 12 month figures for large corporate borrowers, the group with the most tools to avoid showing distress. They can refinance, extend maturities, negotiate covenant waivers, or slide problems into private credit vehicles that don’t register as defaults on these public datasets. Because it’s a 12 month rolling window, the line mostly reflects the last wave of defaults aging out of the calculation, not the current state of the credit cycle. In practice, corporate default data is usually 6 to 12 months behind reality, and sometimes as much as 18 months behind the earliest signs of stress.
Meanwhile, the parts of the system that crack first including autos, credit cards, student loans, and commercial real estate are all moving the other way. Delinquencies are rising. Office distress is climbing. Lower income borrowers and subprime consumers are feeling real strain. That’s the ground truth. The chart looks calm only because the pressure hasn’t reached the part of the credit market that shows up in those numbers but it’s already visible everywhere else.
Default Rates Are Falling
The bottom line is that the US economy remains incredibly resilient. -Torsten at Apollo https://t.co/9yYSvggVVH tweet
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EndGame Macro
The near term forward spread is basically the bond market’s instinct about where short term rates are headed. When it drops below zero, it means investors expect the Fed to be cutting in the future, not because things are going great, but because policy has become tight enough that something eventually gives. Historically, that has lined up well with recessions because the Fed rarely cuts unless growth or inflation cools hard enough to force their hand.
The curve didn’t break this cycle, it simply fired early. Rates went from zero to restrictive at a speed we haven’t seen in decades, so the bond market started pricing future easing almost immediately. But the economy didn’t roll over on cue because households, businesses, and banks entered the tightening phase with more buffers than usual with stronger balance sheets, longer dated debt, and a labor market that stayed tight. Instead of a clean downturn, we’ve lived through a long, uneven softening with housing first, then manufacturing, with services keeping the top line numbers afloat.
Is the Signal Still Useful?
Yes, but not as a stopwatch. A negative spread still tells you the Fed has gone far enough that the next meaningful move in policy is lower. What it doesn’t tell you is why those cuts arrive. They can come because the economy breaks, or because inflation falls enough to give the Fed breathing room. Right now, the spread is hovering closer to zero, which many people read as problem solved, but it can also mean the market thinks the first cut is simply getting closer.
So the indicator hasn’t lost its edge, it just can’t compress an unusually complicated cycle into a simple timeline. It’s warning about the same thing it always warns about…policy is tight, and easing is the next chapter. The rest of the story depends on how the stress building in credit, lending, and consumer finances finally shows up in the broader data.
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The near term forward spread is basically the bond market’s instinct about where short term rates are headed. When it drops below zero, it means investors expect the Fed to be cutting in the future, not because things are going great, but because policy has become tight enough that something eventually gives. Historically, that has lined up well with recessions because the Fed rarely cuts unless growth or inflation cools hard enough to force their hand.
The curve didn’t break this cycle, it simply fired early. Rates went from zero to restrictive at a speed we haven’t seen in decades, so the bond market started pricing future easing almost immediately. But the economy didn’t roll over on cue because households, businesses, and banks entered the tightening phase with more buffers than usual with stronger balance sheets, longer dated debt, and a labor market that stayed tight. Instead of a clean downturn, we’ve lived through a long, uneven softening with housing first, then manufacturing, with services keeping the top line numbers afloat.
Is the Signal Still Useful?
Yes, but not as a stopwatch. A negative spread still tells you the Fed has gone far enough that the next meaningful move in policy is lower. What it doesn’t tell you is why those cuts arrive. They can come because the economy breaks, or because inflation falls enough to give the Fed breathing room. Right now, the spread is hovering closer to zero, which many people read as problem solved, but it can also mean the market thinks the first cut is simply getting closer.
So the indicator hasn’t lost its edge, it just can’t compress an unusually complicated cycle into a simple timeline. It’s warning about the same thing it always warns about…policy is tight, and easing is the next chapter. The rest of the story depends on how the stress building in credit, lending, and consumer finances finally shows up in the broader data.
We don't hear much about the near-term forward spread (3m yield - expected 3m yield in 18m). This was supposedly the best yield curve predictor of recession, but as you can see it's mostly been negative since 2022 with no recession. Triggered too early or no longer useful? https://t.co/93btBYkb2D tweet
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Dimitry Nakhla | Babylon Capital®
$NFLX $WBD $PSKY https://t.co/6thRxaXQgA
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$NFLX $WBD $PSKY https://t.co/6thRxaXQgA
Paramount is now reportedly looking to launch a hostile bid for Warner Bros
They feel their $30 a share all-cash offer is higher than what Netflix offered — in terms of cash, stock and the value of the cable business spinoff
(via @CGasparino) https://t.co/Vc3Yupvbkf tweet
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Clark Square Capital
A story that will appeal to the young value investor https://t.co/34bJP1OyWK
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A story that will appeal to the young value investor https://t.co/34bJP1OyWK
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Dimitry Nakhla | Babylon Capital®
$NFLX $WBD $PKSY 😅😂 https://t.co/Sqz2xos3WQ
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$NFLX $WBD $PKSY 😅😂 https://t.co/Sqz2xos3WQ
Paramount is now reportedly looking to launch a hostile bid for Warner Bros
They feel their $30 a share all-cash offer is higher than what Netflix offered — in terms of cash, stock and the value of the cable business spinoff
(via @CGasparino) https://t.co/Vc3Yupvbkf tweet
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My ancestors who had to hunt and fight wild animals for food watching me have a panic attack while trading leverage https://t.co/ZVlBPrUWYi
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My ancestors who had to hunt and fight wild animals for food watching me have a panic attack while trading leverage https://t.co/ZVlBPrUWYi
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