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20160102
There are signs of a decline in the bond market, and that spells bad news for the wider economy. The markets are a good predictor of the state of the overall economy, historically around six months ahead of what's to come. The decline, coupled with low oil prices, has analysts worried, but that doesn't necessarily mean it's all doom and gloom.

Fears are growing the decline in junk bonds could be a sign the economy is the worse for wear. A rise in the default rate is expected to reach 4.6 percent next year, higher than the 30-year average and the first time that average has been exceeded since 2009.

“In most high-default periods we’ve seen in the past, the rise in default rates precedes a recession,” Edward Altman, finance professor at New York University, told the Wall Street Journal.

The shift has investors spooked. The Bank for International Settlements warned central banks on Sunday to avoid letting this volatility influence their decisions on rate settings. In a note taking into account the historically low interest rates, the BIS advised anomalies in the markets have led to fears around any movements, particularly around the Federal Reserve potentially raising rates.

"Under such extraordinary conditions, it is not surprising that markets remain unusually sensitive to central banks' every word and deed," said Claudio Borio, head of the BIS' economic department......................

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