Time to Buy Risk?

Jim Picerno over at Capital Spectator has interesting charts about how risk is priced. Here's one:

Yes, risky assets now have a much wider spread over treasuries than they did last year. But that was almost entirely because risk earned such low returns last year. Read Jim's comments about what Mr. Market is--and is not--telling us.

Here's my own narrow-field view:

It's cheaper to borrow if you have low risk, like you're Henry Paulson or Warren Buffett. If your credit quality is not pristine, it will cost you more--if anyone will lend to you at all.

What's this mean for the economy? I still don't see the "credit crunch" people are talking about. My conversations with bankers and corporate CFOs confirm that aside from the real estate development industry, credit-worthy companies are still able to borrow. It's hard to have a recession in your economic forecast without the credit crunch.

Comments

[Jeff Kiburtz]

Interesting post, but it seems to me that rates alone cannot be an accurate indicator of credit conditions -- volume is also important.

Although rates should, in theory, reflect overall credit conditions, that appears not always to be the case. For example, a straight-across comparison of mortgage rates in June 2007 versus mortgage rates in January 2008 (generally higher then versus now) would indicate that mortgage credit conditions are more lax now. That is something which conventional wisdom -- supported by the relative volume of mortgage debt being originated then versus now -- suggests is not the case.

Do you have any data on the relative volume of corporate credit issued in June 2007 versus that issued in January 2008?

Thanks.