“Early last month, Fed Governor Jeremy Stein gave a speech titled Overheating in Credit Markets: Origins, Measurement, and Policy Responses that raised the question of whether or not we might be seeing a bubble, and if so what might be done about it.
You’ve probably heard a lot of talk about the aggressive lengths that money managers are going to to “reach for yield” in the context of this ultra low-rates environment.
Stein didn’t sound too fearful yet, but the overall concern is that we could be setting up another credit bubble, just like before the recent crash.
In the latest version of their US Interest Rates Strategist letter, Morgan Stanley‘s Vincent Reinhart and Matthew Hornbach look at the scene in corporate credit and determine that the market might be “modestly rich” rather than straight-up “overheated.”
Three charts from their work stand out, that nicely call into question the idea of a bubble….”
Full article and charts
