A year ago, there was a historic opportunity to make money out of credit. The market had never paid you less to compensate for the risk that a company would default. To profit, you bought insurance against default.

Things have changed. Defaults have fallen, but the market is now prepared to compensate you generously for bearing the risk of a default. This is true of the market for cash bonds or for credit default swaps, which offer insurance against default; it is true from the most speculative credits to the safest triple-A rated companies; and it is true both in Europe and the US. But nobody wants to take on these risks. The market had it badly wrong a year ago. Has it now gone too far in the opposite direction?