by Laura Conaway

A research paper in the Journal of Monetary economics argues that long-term corporate bonds have been a terrific predictor of changes in the economy. The economists tracked the yields of low- and moderate-risk corporate bonds against the performance of U.S. Treasury bills. When the spread widens between the corporate bonds and the Treasuries, look out world.

The Wall Street Journal (subscription requ'd.) takes a fairly plain-language view of the study:

With the massive widening in corporate-bond spreads last fall, the economists' model predicts industrial production will fall another 17% by the end of the year, and the economy will lose another 7.8 million jobs on top of the 5.1 million it has shed since the recession began.

Calculated Risk sounds less than convinced, posting a chart of bond spreads that should have predicted "a few extra recessions."