Once upon a time there was an asset class called high yield debt. It consisted of all the lowest quality bonds issued by all the lowest quality companies. Companies like Frontier Communications and Sprint and Valeant Pharmaceuticals.
And yet, because There Is No Alternative but to buy risk assets these days, particularly for Yield-Starved Fixed Income Investors, in aggregate this debt traded at yields well below the historical average.
You see, what the Yield Starved Fixed Income Investors had forgotten was that high yield debt returns are (badly) negatively skewed.
And so what the Yield Starved Fixed Income Investors had bought was return free risk.
(Charts from a presentation by Troob Capital Management)