100 Years of Credit Risk

Here’s a fascinating chart. This is a 100-year chart of credit risk. This shows the spread between Baa bond yields and Aaa bond yields.

The wider the spread, the greater the risk perceived by investors. What I find interesting is that this data series moves in two modes. Most of the time, the spread oscillates between 0.5% and 1.5%. Then, every so often, the relationship gets totally blown out.

During the financial crisis, the spread peaked at 3.5%. This is very typical of financial markets, and it’s why it’s so hard to model the market’s behavior.

Posted by on February 23rd, 2019 at 10:56 am


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