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Credit default swap spreads are coming back down to earth, and they are now at a new post-recession low. They are still higher than they were in early 2007, when markets were still unconcerned about the budding subprime mortgage crisis, but they are now lower than they were just prior to the onset of the Great Recession. Pessimism is thus receding, and I think that's what is pushing the prices of corporate bonds and equities higher, not excessive optimism. Not yet, at least.

Looked at another way, CDS spreads are telling us that the risk of a recession is declining meaningfully. As I've been saying for months now, avoiding recession is all that matters to investors. When cash yields nothing but risky investments yield a lot more, it only makes sense to remain in cash if you are very fearful of another recession or an onslaught of bad news. The economy is likely growing at a disappointingly slow pace, but it is nevertheless growing, and the risk of recession is low and declining.

More and more investors are seeing the train leaving the station and they are increasingly anxious to not be left behind. As investors attempt to shift out of cash, they inevitably push up the prices of risk assets.