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Bond markets are flashing red and an oil plunge could only make things worse

Stock markets have been gripped with fear this week over a deteriorating economic growth outlook and questions regarding the U.S.-China trade truce.

While investors have typically pointed to the yields on different U.S. government bonds for warning signs on growth, the secondary market of corporate debt may also be a key to market directionality from here.

During the first bout of stock market volatility in February, so-called investment grade and high-yield (or junk) bonds remained relatively resilient. However, in October and after the S&P 500 plunged 7 percent having its worst month since November 2008, credit markets also started exhibiting some signs of distress, underperforming equities.

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