There is no better measure of the risk aversion out there than the Petrohawk deal which closes today. Even after receiving final regulatory clearance two days ago it closed yesterday at a 13 bps spread(or well into a double digit yield annualized). Six month treasuries are yielding 2 bps. At that rate it would take years to earn the same 13 bps that one can earn in a single day holding Petrohawk. Yet financial institutions are shunning Petrohawk and buying treasuries.
I am very worried about the possibility of a depression as many chickens are coming home to roost at once. But given the current level of risk aversion there is room for improvement in markets if something short of a disaster occurs. Even if we are headed for a depression the path there will likely not be straight down.