Less stretched, for now

THE date that still gives many a corporate treasurer nightmares is October 11th 2002. On that day, after months of scandal, bankruptcies and wrecked balance sheets, bond investors washed their hands of all but the safest corporate borrowers. The spreads on corporate bonds over Treasury bonds ballooned to historic highs, if firms could borrow at all. For many of the riskiest borrowers, credit markets simply shut down. An index of junk bonds compiled by Merrill Lynch rose to 1,100 basis points (11 percentage points) over Treasury bonds; even investment-grade bonds yielded 260 basis points more than government ones. Unable to afford such punitive rates of interest, many a firm seemed destined to go bust. As it was, by dollar value, more investment-grade bonds defaulted last year than at any time since the Depression.