Yes! It means performance expectations of BBB is quite stable. There is certainly the question over whether loose monetary policy is pushing investors to riskier assets and if these risks are therefore being underpriced, but comparing them to their recessions highs when everyone is fire selling them is completely disingenuous.
> It means performance expectations of BBB is quite stable.
Given that we are in a period of disruptive innovation I find that market optimism alarming. I think it means that even the least competent accumulations of capital are expected to extract savings by removing workers and hold onto their position using IP, regulatory capture, etc despite the best competition doing it all an order of magnitude better.
In a free market, the spread should be high right now since a few large players and startups should be about to decimate energy, transport, insurance and health costs and return the majority of the savings to customers. Why is there so much confidence in bad businesses holding onto profitability?
You can't say it's too high or too low without having an idea of the right answer to compare it with. What should the spread be? 1%? 10%? Is 1.4% appropriate, optimistic, or pessimistic?
I think at least 1/10 should fail with assets at least partially insufficient to cover. So going bellow 5-10% above government bonds says something very odd about the market.
(I think in past markets most companies in this class would have to sell stock since 20% will do very well and 10% fail so no one would accept the downside at a reasonable bond rate. The market is confused by the low underlying rate which IMO means the end of expansion to new markets, hence the disruptive only nature of the current market.)
