A documented sequence, not a forecast. It states what would falsify it, and where it has failed before.
Trigger
High-yield spreads widening 100bp in a month, or a funding market dislocation
How it runs
- Spreads widen before equities fall; the two usually reconnect within weeks
- Banks tighten lending standards, which shows up in the quarterly survey with a lag
- Refinancing windows close for the weakest borrowers — commercial property and leveraged loans first
- Private credit marks lag public prices, so the losses appear late and in a lump
- Volatility rises, forcing mechanical selling by volatility-targeting funds
- The central bank responds to funding stress far faster than it ever responds to inflation or unemployment
What it means for a household
Reaches ordinary life through mortgage availability, small-business lending and, increasingly, the private-credit holdings inside annuities and retirement accounts.
What would prove it wrong
Falsifier
Spreads widening while funding markets stay orderly and bank equity holds up. Spread widening without a funding problem is repricing, not a crisis.
Where it has failed
Precedent
March 2023. Three large bank failures in two months did not become systemic, because the deposit guarantee was extended within days.
Its neighbourhood
Everything this entry connects to directly. Click any point to follow it.
Watch these to confirm it
If the chain is running, these move in this order.