Goldman Sachs: High Yield Bond Spread of 500 Basis Points Could Prompt Fed Policy Shift

BlockBeats News, April 8th, according to Goldman Sachs analyst Lindsay Matcham's recent research report, if the credit spread further widens, coupled with the bond market pricing in a recession, it will prompt the Fed to take action. Typically, a widening credit spread may lead to difficulties in corporate financing, and the job market will subsequently weaken. If the high-yield bond spread continues to expand to 500 basis points, Powell is highly likely to intervene and change the policy stance as he did in 2018.

Powell's attitude was relatively hawkish last Friday, but this was mainly because the recent plunge in the U.S. stock market was event-driven, the nonfarm payrolls data remained strong, and given that tariffs could potentially drive up inflation in the future, he did not want to use policy "bullets" prematurely. However, the current high-yield bond spread has already reached 454 basis points, just a stone's throw away from the 500 basis point danger threshold.

The report only assigns a 51% probability to a rate cut at the May Fed meeting, indicating that the bond market needs further adjustment to prompt Powell to change the policy stance, which could potentially trigger a stock market rebound. (Wall Street News)