Shooting Over Par

Fed officials who don’t see signs of inflation haven’t been watching loan prices. As credit markets healed over the last two years, investors saw loans behave in a recovery as they were designed to. Default rates fell and recovery rates rose, proving the asset class could withstand a hundred year flood and come out barely moist. Three months after Lehman failed loan prices in the secondary market reached a record low of 65 cents on the dollar. At the time, no one knew whether a bottom had been reached. Anxiety reigned and markets had no clear guidance on a path to recovery.

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