But there were signs of potential trouble in the global economy. To begin with, we were seeing a growing excess of desired global savings relative to desired investment. Quite naturally, this served to drive down real longer-term interest rates, even as central banks around the world were in the process of raising short-term policy rates.
With the decline in longer-term interest rates, investors stepped up their demand for riskier assets that would deliver greater returns than investments with a lower risk. This search for yield led to a narrowing of spreads between the yields of risky assets, such as lower-rated corporate bonds, and the yields on government bonds.