It's currently spiking to levels previously seen only during the Global Financial Crisis around 2008. , the founder of market research firm Bianco Research, the volatility reflects uncertainty among bond investors about what the Fed will do at their June meeting.
This uncertainty is a result of banks' growing reluctance to lend out money amid the liquidity scarcity that caused two banks to close earlier this month. A large enough pullback in lending will send the economy into a downward spiral, he said. Right now, almost 45% of banks are tightening lending standards. That's not yet as high as at the recessionary peaks in 2020 , 2008 , or 2001 , but the number appears to be continually growing.Relatedly, tightening lending standards typically mean larger credit spreads. Credit spreads are the gap between high-risk bond yields and yields on risk-free bonds.
The chart above shows that spreads are still low. But historically, when lending standards tighten — making it harder for companies to get a loan from banks in order to stay afloat — credit spreads follow. A recessionary outcome likely means more pain for stocks. Just how much pain, however, is where opinions diverge, partially because it depends on the depth and duration of a downturn.if a recession comes. That's 14% downside from the index's current level around 4,090.
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