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In this pandemic, all bets are on

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“Who remembers places?” ran a joke on social media as lockdowns swept the globe. The idea that something so fundamental could be forgotten so quickly applies to capital markets too. There, the joke might ask who remembers credit risk. But at a time when central banks seem keen to underwrite credit of almost every variety, maybe it doesn’t matter.

People puzzled how Italy — ravaged by coronavirus and growing an already enormous debt pile as a result — could lure a record €110bn of orders for new bonds when the EU-wide debt mutualisation it craves is nowhere in sight.

There have been issuance records slashed in the corporate bond market, as investors lust for debt from companies desperate to shore up cash because they don’t know when they will next earn any revenue.

An imminent, possibly deep, recession has counter-intuitively driven capital markets wild for debt, just as borrowers’ prospects of repaying it have never looked worse — let’s not forget, there is no cure for Covid-19 in sight.

Have investors lost their minds? No; rather they are taking the rational view.

Spreads and new issue premiums have blown out as you would expect. But how risky is any credit when central banks and governments have moved heaven and earth to prop up every part of the economy they can? The European Central Bank, for example, has made investment grade corporate bonds a policy tool — another market where, no matter what, there is a monstrous official bid waiting if you want to sell bonds.

Having an institution that literally prints its own money and made doing “whatever it takes” a household phrase backstop your bets means you can — and should — make as many as possible.

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