New research from S&P hints that the "junk bond" category could be a thing of the past. The spreads on both investment-grade and junk bonds (sorry, speculative-grade bonds) are at record lows, thanks to, basically, huge amounts of capital looking for a home. Almost half the corporate world is now junk grade, driven down by growing leverage and growing tolerance from lenders.
CFO.com:

For example, wrote S&P, from 2003 to 2005 investment-grade spreads slid close to 100 basis points; during the past 12 months, they have averaged 133 basis points.
The spread for speculative-grade debt has also contracted sharply, from 800 basis points in January 2003 to about 340 basis points during the past 12 months.

And the takehome quote:

"With spreads compressed across all rating categories, the cost of maintaining an investment-grade rating no longer affords firms a significant cost advantage," said Diane Vazza, head of Standard & Poor's Global Fixed Income Research Group.

It's another angle on the same story - high liquidity makes debt a borrower's market, and lenders' confidence is boosted further by the secondary debt market, which allows them to resell risky debt rapidly and reliably.

One of these days - maybe this year or maybe next year - a major leveraged loan deal is going to flop, embarrassingly and publicly. What happens then? Well, that'll be an interesting time for everyone, won't it?