When I entered the fixed income business 26 years ago next month (and when I took over a fixed income trading book two years later), the fixed income business was a simple place. One judged credits on fundamentals, long-term rates on inflation expectations and forecast monetary policy by the thickness of Alan Greenspan’s brief case (the thicker the brief case the greater the chance for a change in monetary policy). We did not worry about quantitative easing. Corporate borrowers were allowed to default and, if necessary, fail. Market participants took their lumps like adults when an investment soured. No one expected the Fed (or anyone else) to bail them out. That all changed by the late early 2000s, when the Greenspan Fed displayed the tendency to ease policy at the slightest bit of market turmoil. This was known by market participants as the “Greenspan Put.” This was followed by the “Bernanke Put.”

No longer were market participants required to conduct deep analysis. One simply considered the credit rating, crunched the default probabilities through one’s favorite model and made a decision. If the models were wrong, few cared as the Fed was there to kiss one’s investment boo-boo and make it all better. I had hoped that this mentality was gone for good following the painful Financial Crisis. However, by 2012, wanton risk taking was occurring in the high yield debt markets.

The mantra being chanted in 2012 was: High yield corporate balance sheets were cleaner after the crisis, the Fed is going to keep rates low for a long time and will not tighten until the economy reaches escape velocity (which couldn’t be more than a year away). What investors and advisors were often not told was that, by investing in junk, they were helping to muddy those clean balance sheets. By 2013, it was becoming clear that the economy was not reaching “escape velocity.” Thus, all hope was placed on the “Fed Put.” By mid-2014, with energy prices starting to crack and Fed Chair, Yellen opining (correctly) that high yield looked frothy (and was ridiculed in the process), it appeared that a Fed Put was the only hope for the riskiest assets.