Junk Bond Spreads Are Rising! Watch out for more Carry Trade Losses

Carry trades collapsed this morning as the spread between Junk-rated Corporate Bonds and US Treasuries surged, indicating that investors are becoming more risk averse. If the spread continues to rise, the Fed could cut interest rates again in December as the troubles in the financial and housing sector continue to plague the economy. This spread is one of the market indicators that the Fed watches closely. We have included this as well as other indicators in our latest Watch What the Fed Watches report.