Economic Terms Glossary

A sustained decline of 20% or more in a broad market index from a recent high. Different from a correction (10–19% decline), which is considered temporary.

A regulated investment vehicle that lends to or invests in small and mid-size private companies. BDCs are heavily exposed to private credit and leveraged loans, making their health a leading indicator of credit market stress.

One hundredth of a percentage point. 100 bps = 1%. Used by central banks and bond markets to describe small but meaningful rate changes with precision.

The Federal Reserve's preferred inflation measure. It tracks changes in the prices of goods and services purchased by consumers, excluding food and energy. The Fed targets 2% Core PCE over the long run.

The yield difference between a corporate bond and a comparable Treasury bond. Wider spreads indicate that investors demand higher compensation for lending to corporations — a sign of increasing perceived risk.

A measure of the average change in prices paid by consumers for a basket of goods and services. Published monthly by the Bureau of Labor Statistics (BLS). More widely publicized than PCE but less precisely targeted by the Fed.

MacroImpactIQ's proprietary score (0–100) that aggregates credit conditions, household financial health, labor market indicators, and monetary policy tightness into a single system-level stress reading.

A borrower's operating income divided by their total debt service obligations (principal + interest). A ratio below 1.0 means the borrower cannot cover debt payments from operations alone.

The percentage of borrowers in a loan portfolio who have failed to make required payments. Historically averages ~2.5% for U.S. high-yield debt. Rates above 5% signal significant credit stress.

When a company in financial difficulty offers creditors new securities (typically with lower face value or extended maturities) in lieu of default. Counted as a form of default by rating agencies even if technically not a missed payment.

A macroeconomic modeling framework used by central banks to simulate how the economy responds to shocks. Grounded in microeconomic theory but often criticized for poor performance during crises.

The interest rate at which U.S. banks lend reserve balances to each other overnight. The Federal Reserve's primary monetary policy tool — raising it slows the economy, cutting it stimulates it.

A database maintained by the St. Louis Federal Reserve containing over 800,000 economic time series from hundreds of sources. The gold standard for U.S. macroeconomic data.

An international body that monitors and makes recommendations about the global financial system. Established by the G20 after the 2008 financial crisis to coordinate financial regulation across countries.

The total monetary value of all goods and services produced within a country in a given period. The broadest measure of economic size and growth. Published quarterly by the Bureau of Economic Analysis (BEA).

When short-term Treasury yields exceed long-term Treasury yields (e.g., the 2-year yield is higher than the 10-year yield). Historically one of the most reliable recession predictors, with a lag of roughly 12–18 months.

A phase of the business cycle characterized by slowing growth, tight labor markets, elevated inflation, rising interest rates, and compressed corporate margins. The economy is still expanding but the pace is decelerating.

The use of borrowed capital to amplify potential returns (and losses). Expressed as a ratio: total debt to equity or total assets to equity. High leverage amplifies gains in good times and accelerates collapse in downturns.

A period when a large volume of debt comes due simultaneously, forcing borrowers to refinance at prevailing (often higher) rates. Creates systemic refinancing risk when market conditions are unfavorable.

When a party takes on more risk because they believe they will be protected from consequences — typically because someone else (e.g., the government or a lender of last resort) will bear the cost of failure.

A loan where interest is paid by issuing additional debt rather than cash. Allows distressed borrowers to defer cash outflows but compounds the total debt burden over time. A rising PIK share is a sign of cash flow stress across a loan portfolio.

Lending to companies by non-bank institutions (private equity funds, BDCs, asset managers) rather than through public bond markets or traditional banks. Has grown from ~$500B to ~$3.5T since 2010, operating largely outside bank oversight.

A monetary policy tool where a central bank purchases assets (typically government bonds and mortgage-backed securities) to inject liquidity into the financial system and push down long-term interest rates.

The reverse of QE — the central bank reduces its balance sheet by letting bonds mature without reinvestment or by selling assets outright. Removes liquidity from the system and tends to push long-term rates higher.

A significant, widespread, and prolonged decline in economic activity. The National Bureau of Economic Research (NBER) is the official arbiter in the U.S. and considers multiple indicators beyond just GDP.

MacroImpactIQ's classification of the current macro environment based on a composite of growth, inflation, credit, and financial stress indicators. Regimes include: Early Expansion, Mid Cycle, Late Cycle, Stress Buildup, Contraction, and Recovery.

A meaningful, sustained change in the macro regime classification — for example, moving from Late Cycle to Contraction. Regime shifts often coincide with turning points in asset prices and economic activity.

The risk that the failure of one financial institution or market segment triggers a cascading collapse across the broader financial system. Distinguished from idiosyncratic risk (which affects only one firm) by its contagion potential.

Credit intermediation that occurs outside the traditional regulated banking system — including money market funds, hedge funds, private equity, and BDCs. Subject to less regulatory oversight, capital requirements, and transparency.

A graph plotting the interest rates of bonds with equal credit quality but different maturities. A normal yield curve slopes upward (longer maturities pay more); an inverted curve (shorter maturities pay more) has historically preceded recessions.

A statistical model that uses the slope of the Treasury yield curve — typically the spread between the 10-year and 3-month Treasury yields — to estimate the probability of a recession over the next 12 months.