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 maturities of Treasury bonds (Yield Curve) indicating about systemic stability, deflation, inflation, etc. bond yields are a key element of the overall 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 flattening 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.
High Yield (junk) bond spreads vs. higher quality bonds can be seen in charts like this HY Index spread. When rising systemic stress is in force. When stable or declining systemic relief and/or relative calm are in play.