High Yield Market Pricing In 44% Recession Risk

In a new report, Marty Fridson, CIO at Lehmann Livian Fridson Advisors LLC a wealth management fund specializing in income investing, focuses on speculative high-yield corporate bonds. Fridson has crunched the numbers and has determined that the market is currently pricing in a 44 percent chance of a U.S. recession within the next year.

Fridson used the data in the table above and the following method to make his calculation.

Although he notes that this method yields results similar to the probabilities calculated by economists, Fridson emphasizes the limitations (and historical inaccuracy) of year-end economic forecasts.

The high-yield markets track record in predicting recessions is far from perfect, and Fridson notes that the current market may be overstating the risk. In that case, one might infer that high-yield bonds offer good value currently, he noted.

The iShares iBoxx $ High Yid Corp Bond (ETF) (NYSE:HYG) is down 1.2 percent so far in 2016.

Disclosure: the author holds no position in the stocks mentioned.