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I will throw down a gauntlet it’s possible no one cares about: I’m somewhat suspicious that “reaching for yield” exists (outside of very specific accounting environments).
What I do believe happens is that when safe assets are scarce, the incentive to issue safe debt backed by risky assets increases. This would *look* like reaching for yield, but come from a different place.
The difference: folk version of reaching for yield is “interest rates are low, therefore I increase risk taking.” What I’m saying is “*risk premia* are high, therefore I increase risk taking.”
This transforms a statement that is non-trivial to get out of a model into one that is very easy to get out of a model, but the two statements would be difficult to distinguish empirically.
Note: I do not expect to see a lot of converts to this anytime soon.
