The Buttonwood column at Economist.com asks this very question. Signs of financial distress are accumulating in a number of different channels.
And finally the markets themselves are suggesting that all’s not for the best in this best of possible worlds. In the past few weeks, equity and bond markets have sold off, emerging markets ditto, high yield bonds’ spreads over Treasuries have widened a bit and equity volatility has finally stirred from its lengthy snooze. There is typically some correlation between higher volatility and wider bond spreads, and between spreads and default rates, though it is unclear what leads what. So are we now heading definitely for the door?
The column notes that a few more “accidents” like Refco could tip the balance towards a tigher supply of credit and higher overall spreads.