The sell-off in stocks isn’t the only ominous economic sign emanating from financial markets. The bond markets, much more closely linked to the actual economy, are also flashing a warning.

Dec. 18, 2018

Ask someone how “the Dow” is doing and, even if they don’t know the answer, they’ll know what you’re talking about. Ask them about the bond market and you’ll most likely get a blank stare.

When it comes to the economy, however, bonds are far more important than stocks.

Bond markets dictate the cost of borrowing money, and that can determine actual economic activity. The decision by a C.E.O. to build a plant or take the plunge on a new product is often decided by how much it will cost to borrow the money to pay for it. When that payment climbs too high, corporate activity slows, and so does the economy.

Lately, borrowing costs have been rising quickly. Investors worried about corporate debt loads and the impact of a potential slowdown on profits are demanding companies pay them higher interest rates.