Whether it be low quality of Junk Bonds vs. the perceived high quality of US Treasury and Investment Grade Corporate Bonds indicating a risk ‘ON’ or ‘OFF’ market backdrop, or the relationship between the different durations of Treasury bonds (Yield Curve) indicating systemic stability or stress, bond yields are key to the macro analysis every step of the way.
For instance, a rise in Junk Bonds vs. Investment Grade implies a speculative environment is in force and declining yield curves indicate that the market is not concerned about inflation or systemic stress. When they rise, it’s the opposite.
Other spreads like the TED Spread (T Bills vs. Eurodollars) are used in the same manner. When TED is low, there is little perceived credit risk in lending to corporate borrowers (vs. T Bills). When rising, credit is considered to be constrained. Similarly, LIBOR is a credit risk indicator that shows banks very willing to lend to each other when declining and averse to lending when rising.