(New York)

By any reasonable measure, high yield bond markets look very scary right now. The way that yields have plummeted, the way that covenants have weakened, and the general ease of accessing credit are all reminiscent of 2005. Spreads over Treasuries have fallen to just 300 bp. A year ago they were at 600 bp. Companies have successfully weakened investor protections in new issues without penalty, and crucially, default rates will likely fall below 1% this year. The picture was the same in 2005.

FINSUM: By the Crisis, default rates hit 14% and high yield investors got killed. However, a big correction in high yield would take a catalyst. Is it a sooner-than-expected Fed pullback?