what happens to bonds during a recession? What are the implications on their risk premium?
May 13, 2010
Tags: Bonds, during, happens, implications, premium, recession, risk, their
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In *this* kind of a recession – bad things. A credit crunch means banks aren’t lending the money necessary for businesses to issue bonds, and as investors sell them to try and scrape what little cash they can get from their collapsing investments, the ones already on the market will decline. The credit spread/risk premium widens because everyone’s selling out on them.
According to the Wall Street Journal, however, the Bond market is shaping up and getting back on track (see sources).
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