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A friend of mine just emailed me the chart below. Considering the fact that we just witnessed 7 full years of ZIRP (zero interest rate policy), I probably shouldn’t be surprised just how massive the investor migration into risk assets, like junk bonds and leveraged loans, has been. But I am.

Even after a significant reduction in new issuance, total high-yield assets are still well more than double their pre-financial crisis peak. And leveraged loans are still nearly triple their own prior peak. This latest episode of investor “reach for yield” was clearly far bigger than anything we’ve ever seen before.

Another way to look at the incredible appetite for risk we saw during the recent boom is the volume of “covenant-lite” issuance as a percentage of the total. Never before have investors been so eager to take so much risk AND with so little recourse.

This is really what should be most worrisome right now. Because, what follows the greatest boom in risk appetites by retail investors in the credit markets is inevitably the greatest bust we’ve ever seen before. Furthermore, as the credit cycle turns, investors may soon find themselves up this shit creek without a paddle (typical covenants).