The credit cycle lives, but becomes more elusive

An issue of crucial importance for all markets in 2007 is the one raised by Lawrence Summers of Harvard in the FT on December 27. The general perception, he pointed out, is that the world is at an unusually dangerous juncture in geopolitical, economic and financial terms. Yet investors are taking an extraordinarily sanguine view of risk. Specifically, spreads on corporate and emerging market bonds over government bond yields are at historic lows, as is volatility. Are investors living in a fool’s paradise? Or can this divergence between the conventional wisdom and market perception persist?