Small spreads between risky and less risky assets mean either that the world had gotten less risky, or that investors were ignoring risk in search of higher returns. Spitz thought it was the latter which motivated his investment advice:
- Avoid Riskier assets
- Stick with quality
- Be skeptical of the rush to alternatives
- Moderate return expectations
- Borrow now if you are a marginal credit
The rally in the corporate-bond market and a steady supply of easy money courtesy of the Federal Reserve are encouraging investors to take more risks. And Wall Street bankers and companies are taking advantage where they can.
The Financial Times ran a similar article: "Junk bond prices hit pre-crisis levels"
Strong investor demand for junk bonds has pushed the average price on such corporate debt to its highest level since June 2007, when companies could borrow with ease at the height of the credit boom.
We have blogged about whether high bond prices (low yields) are a bubble, or driven by fundamentals.
Of course, if I really knew, wouldn't I just invest myself instead of blogging about it?