Indicators · AI investment and markets
Corporate credit
Normal Downturn signal
US corporate bonds rated Baa yield 1.57 percentage points more than the ten-year Treasury bond, down 4 basis points over three months (63 trading days); the extra yield on high-yield bonds is 3.42 percentage points in the US and 3.49 percentage points in the euro area, as of 5 Nov 2026.
The change over three months is lower than 53% of the readings since 1990.
US recessions Periods when this signal was on
What it measures
The extra yield on US corporate bonds rated Baa by Moody's, the lowest grade still counted as investment grade, over the ten-year Treasury bond.
Why it matters
Losses on lending for AI investment and on private credit would show in corporate borrowing costs. A higher extra yield makes borrowing more expensive for all firms.
When it triggers
Triggers when the extra yield on Baa-rated bonds rises 0.56 percentage points or more in three months (63 trading days), a rise larger than 95% of those from 1990 to 2019.
Where it fits
A fall in technology shares and corporate credit. The argument predicts: Shares and corporate bonds most exposed to AI fall first, in a decline like the dot-com crash.
Other possible causes. Falls in share prices caused by rising interest rates (2022), and rises in borrowing costs unrelated to AI (2010–11).
A trigger can count as evidence for point 4 of our view, a stock market bust larger and faster than the dot-com crash.
The prediction
Open Set 8 Oct 2026
- If we are wrongtriggers, then stops
- Start−0.10 points6 Oct 2026
- Now−0.04 points5 Nov 2026
- If we are right0.56 points or aboveby 31 Mar 2027
- Severe1.08 pointsin the model, if our view is right
If our view is right, this signal triggers by 31 Mar 2027: the change in the extra yield on Baa corporate bonds over 63 trading days reaches 0.56 points or above. The date comes from the model, in which the extra yield on corporate debt rises 0.9 points in the first three months of 2027. In the model this measure reaches 1.08 points by 30 Sep 2027.
If it triggers and then stops being triggered for 21 consecutive trading days, that counts against our view, which expects a downturn to deepen for several years once it begins. The deadline refers to the period the data cover. If it passes without a reading of 0.56 points or above, that counts somewhat against our view.
When the rule was set
The rule was set on 8 Oct 2026, when it was not triggered.
How often it has been on
Applied to past data at the end of each month from Jan 1990, using only what had been published by then, it was on in 6% of months to 2019 and 4% since 2020. More than six months from any US recession as dated by the National Bureau of Economic Research, it triggered in Sep 1998, Apr 2000, Jun 2010, Sep 2011 and Dec 2018. The rule was set with these years in view, so these figures cannot show how well it predicts.
Past triggers
On the data published at the time, it triggered in Nov 1990, Sep 1998, Apr 2000, Sep 2001, Jan 2008, Jun 2010, Sep 2011, Dec 2018 and Mar 2020.
Source: Moody's via FRED; ICE BofA indices via FRED.