Zurich – Bank of America Corp. chief executive Ken Lewis said a so-called credit bubble is about to break after six years of historically low interest rates and relaxed lending criteria.
“We are close to a time when we’ll look back and say we did some stupid things,” Lewis said, speaking at a lunch at the Swiss-American Chamber of Commerce. “We need a little more sanity in a period in which everyone feels invincible and thinks this is different.”
Demand for so-called junk bonds is close to its highest in a decade, while risk premiums are near their lowest level in a decade. Investors demand an extra 2.69 percentage points to own high-yield, high-risk securities instead of Treasurys, about 2 percentage points less than the spread’s 10-year median, according to Merrill Lynch & Co. index data.
The spread on Feb. 22 came within 5 basis points of the all-time low of 2.44 percentage points, set Oct. 17, 1997.
Junk bonds are rated below Baa3 by Moody’s Investors Service and BBB- by Standard & Poor’s.
