Credit default swap spreads are narrowing (3)

Another update on this chart which shows only good news: spreads on corporate bonds of all stripes continue to narrow. This reflects a market that has more confidence in the future; monetary policy that continues to be accommodative; reduced default rate expectations; and improved economic growth expectations. These are all essential conditions for recovery. This is a process that feeds on itself as well, thus creating a virtuous cycle of improvement—more confidence, more money, more investment, more growth, etc. There is still lots of room for improvement, but with no obstacles standing in the way of improvement, corporate bonds are likely to be strong performers. And the same goes for bonds of emerging market countries. A world that is recovering, and with easy money everywhere, is nirvana for those with heavy debt loads.

Full disclosure: I am long PAI, HYG and EMD at the time of this writing.