A sense of greater certainty is consistent with the reduction in the variability of many key macroeconomic indicators, which has been accompanied by a decline in revisions to analysts’ forecasts of these variables.2 Yet another possible reason for the low spreads is that financial market participants appear to be willing to take on risks at lower levels of compensation.
In other words, the price of risk may have declined. This could be as a consequence of a few developments. Importantly, accommodative monetary policies have provided investors with an incentive to take more risk so as to achieve a reasonable rate of return. As investors take on more risk, they will tend to bid down its price – as captured by spreads, for example.