In yesterday’s post, I noted a recession forecast based on a probit equation that includes the debt service ratio yielded a much lower probability in 2024M05 than the plain vanilla explanation. Part of why this is true is that the debt service ratio is very low, despite high Treasury yields.
Figure 1: Debt service ratio of non-financial corporations, % (black, left scale), and ten-year Treasury yield, % (tan, right scale). The 2024Q2 yield is based on the first half of the quarter. 2023Q4 debt service ratio estimated by the author using the first difference specifications described here. Source: BIS, Federal Reserve via FRED, NBER, and author’s calculations.
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