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The Fixed-Income Puzzle: Stacking Risk in a World of Complacency

Summary Statement:
In an era where high-yield bond spreads have compressed to just 3.01% above Treasuries, the fixed-income market appears deceptively stable. But beneath that calm lies a layered structure of risk—where maturity transformation, solvency assumptions, and compressed premiums are all finely balanced on optimistic forecasts. This exposition explores the credit hierarchy, exposes the systemic vulnerabilities of underpriced risk, and shows why today’s narrow spreads may be a signal not of strength, but of silent fragility. Investors aren’t just earning yield—they’re playing a puzzle of timing, trust, and economic terrain.