narrowing spreads indicate the confidence in economy in general and particularly the ability of corporates to repay and hence long non-treasury we cant assume we have to go short on Treasury
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CareerChange, The spread on non-Treasuries is related to risk perception. Higher the risk perception, higher the spread. As we approach recession, the risk of defaults is elevated and hence, spreads increase. As we recover from recession, corporate profitability trends up and risk of default goes down.
If we are heading into recession, buy treasuries…if we are heading out of a recession buy corporates.
ok…got it!