The narrowing of credit spreads is a phenomenon that has been well documented. In a nutshell, as European corporates delevered, rating migration became less negative and default rates dropped. Spreads tightened, and credit curves flattened.
Another issue has received less attention. The rally has resulted in a lack of discrimination between credits, which Willem Sels, head of credit strategy at Dresdner Kleinwort Wasserstein views as an anomaly. The chart shows the current frequency distribu