And as I noted previously, credit spreads on corporate bonds have narrowed considerably, particularly for speculative-grade issues. This performance of financial markets importantly reflects investors' response to robust earnings growth and the repair of business balance sheets over the past few years.
However, history shows that  BIS Review 9/2004  3  pricing financial assets appropriately in real time can be extremely difficult and that, even in a seemingly benign economic environment, risks remain. The outlook for the federal budget deficit is another critical issue for policymakers in assessing our intermediate- and long-run growth prospects and the risks to those prospects.