Risky high-yield ‘junk’ bonds aren’t priced like junk — and that’s a problem

You should be worried that junk-bond investors aren’t worried.

Consider the narrow spread that exists currently between the yields on junk bonds and U.S. Treasurys of comparable maturities. This so-called junk spread is a sensitive measure of what junk-bond investors collectively believe is the additional risk they incur relative to investing in Treasurys. As you can see from the accompanying chart, this spread currently is well below its average since 1997 — indicating that junk-bond holders think the risk they face is below…