First, though average spreads of risky corporate debt remain high on an absolute basis, they have recently improved substantially. Spreads on BBB-rated corporate debt have come down nearly one-third since their October 2002 peak, and high-yield spreads are down about one-fifth. Risk as measured by credit default swaps has also come down substantially over the same period.
At least some of the recent marked improvement in perceived default risk and market liquidity must arise from increasing confidence among investors that we have seen the last of the major accounting scandals that rocked the markets during the summer.