Narrow Credit Spreads and a Nearing Recession

CFA Level III
#1

Hi everyone,

I’m currently struggling with a concept that I came across in Level 3 book.

Credit spread narrow issue
Credit spread narrow issue870×713 152 KB

The issue at hand is the simultaneous occurrence of narrow credit spreads and the economy nearing a recession. I’m struggling to understand why these two states can coexist, as I had previously thought that a slowing economy would typically lead to widen credit spreads. I feel like I’m missing something here.

Truly appreciate any help I can get.

#2

How I see it is that widening spreads lead to a positive yield curve or stable economic conditions in the future.
Above in the passage, when falling spreads narrow, worsening economic conditions may be coming, leading to a flattening yield curve.