Chart of the Day: Risk Appetites Surge

Here’s a good update on risk appetite via Sober Look who brings us the Credit Suisse Risk Appetite Index.  The divergence between credit and equity risk appetite in recent years is quite large as credit risk appetite nears its all-time highs:

Below is the famous CS Risk Appetite Index shown together with its US Credit Risk Appetite sub-index. US credit risk appetite is approaching what CS refers to as the “euphoria” level.

CS: – US Credit Risk Appetite is a whisker away from Euphoria while Global Risk Appetite appears range-bound, close to its long-run average of about 1. US CRA being this close to Euphoria suggests caution- riskier corporate credit seems overbought both in absolute terms (yields are near record lows) as well as relative to safer credit. The last time the gap between Global Risk Appetite and US CRA was this large was August 2011, and it did not persist for long.

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Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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  • rharaz

    Hi Cullen,

    What impact might this have on the SP500 and US bond prices? Thanks.

  • http://www.orcamgroup.com Cullen Roche

    Hi Rharaz.

    I only discuss specific market insights via Orcam now. As a registered investment advisor it’s not really prudent for me to be throwing out investment ideas on Pragcap.

    See here for more. http://orcamgroup.com/research-product/

  • Geoff

    For me, the best indicators of credit risk appetite are credit spreads, which are nowhere near their all-time tight levels.

  • Geoff

    I just checked the Merrill Lynch Broad Investment Grade Index. The most recent spread (as of Oct 31, 2012) was 151 basis points versus the all-time tight of 54 basis points on Sept 30, 1997. I’d like to see what the Credit Risk Appetite index was in 1997.

  • whatisgoingon

    Where is a good resource to see credit spreads?

  • Geoff

    Unlike stocks, which are publicly traded and have exchanges like the NYSE keeping track of prices, bond data is notoriously elusive, especially corporate bond data. Broker/dealers are normally your best source. I have access to the Merrill indices (which I cited below) because I’m a client. But I believe the most widely tracked spread data these days comes from the CDS indices, like the CDX.NA.IG which is available at markit.com. Their history doesn’t go back too far, though.