In yesterday’s put up, I famous a recession forecast based mostly on a probit specification incorporating a debt-service-ratio yielded a considerably decrease chance for 2024M05 than a plain vanilla specification. A part of why that is true is that the debt-service ratio is pretty low, regardless of excessive Treasury yields.
Determine 1: Debt-service ratio for nonfinancial firms, % (black, left scale), and ten yr Treasury yields, % (tan, proper scale). 2024Q2 yield relies on first half of quarter. 2023Q4 debt-service ratio estimated by writer utilizing first variations specification described right here. Supply: BIS, Federal Reserve by way of FRED, NBER, and writer’s calculations.
