At the risk of seeming defensive, Brian's comment about using the bond market to forecast default consequences/probabilities started me thinking where I came up with my position. This article sums it up better that I have.
History suggests that such faith may prove to be misplaced in the long run. A study of 116 financial crises in 25 countries found that rates had a poor track record in foreshadowing financial difficulties, said Carmen Reinhart, a co-author of the analysis and the female economist whose work is most frequently cited by other researchers. European debt markets were “complacent” about the growing repayment risks there “even three years ago,” James Bullard, president of the Federal Reserve Bank of St. Louis, said in a May 18 interview.“People don’t worry about credit risk very much until suddenly they worry about it a lot,” said Jay Mueller, senior portfolio manager in Menomonee Falls, Wisconsin, for Wells Capital Management. “Then you can get a panic.” [More]