Sting in the tail

Credit spreads on highly rated names have blown out to levels that are proving irresistible to many buy-and-hold investors such as pension funds. But tail risk in the form of increased default expectations is still a major consideration. Blake Evans-Pritchard reports

Ever since the onset of the current financial crisis in August 2007, banks and other financial institutions have been grappling with the level of debt they are exposed to, and trying to work out how to adjust their books so they regain some degree of normality. Not an easy task, given the complexity of the global lending markets prior to that fateful summer.

There have been a couple of high-profile fatalities amidst all the subprime chaos, namely Lehman Brothers and Bear Stearns. Others, nervous