Credit spreads point to continued growth

Swap and credit spreads have typically been good coincident and forward-looking indicators of systemic risk and the health of the economy. Currently they are showing no signs of any deterioration, and remain about as low as they have been at any time since the last recession. This strongly suggests that the U.S. economy is likely to continue to grow.

Swap spreads both here and in the Eurozone are relatively low. They were much higher in the runup to the last recession, and in the past few years they have increased from time to time due to concerns about the threat of sovereign default risk in the Eurozone. Currently, however, they show no signs of any unusual sources of risk to the economy.

Credit default swap spreads are still elevated relative to where they were in early 2007, but they are as low as they have been at any time since the last recession. There is no sign here of any impending economic weakness or threats to the future cash flows of large corporations.