Wide Credit Spreads says - think again, crisis is far from over !!

Credit spread between Baa-rated bonds and treasuries gives a decent idea to measure the investor's willingness to accept risk. Currently the spread is well above 300 basis points, a level rarely seen in last 50 years.

Whats important is when and how quickly this spread will start to narrow down. As long as the spread continues to widen, risky assets will perform poorly. However, the abnormally high risk premia we are currently seeing indicate that longer-term investors will be paid more handsomely for accepting such risks than they have been paid on average in the past.

Latest:

• Credit spreads widened significantly in Q1-08, but have contracted since dec-end levels.
• Low liquidity, concerns of counterparty risk, billions realized and mark-to-market losses, falling home prices & weakning economy contributed to widening credit spreads (mainly in Q4-07).
• Agressive fed fund rate cut restored liquidity lately helped moderated these concerns in Q1-08.