Fiddling While Loans Burn

By David Wyss

Investors around the world are amazingly complacent about risk. Credit spreads have recently narrowed to record lows, and U.S. speculative-grade securities are still trading at only three percentage points above similar-maturity Treasury bonds. While the tight spreads are keeping borrowing costsdown, their allure is at least somewhat dependent on the continuation of last year's record low U.S. default rate of 1.3% of speculative-grade bonds. At that default rate, the spread looks very tempting.

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