Besides fundamental developments the risk appetite of investors is a driver of the spread differentials between various risk classes. Risk appetite in general describes the willingness of market participants to invest in risky assets as opposed to risk-free assets. Clearly, risk appetite is an unobservable factor but there are various indicators that are designed to extract a measure for risk appetite or risk aversion from market data. More details on this subject are provided later With respect to the performance of subordinated bonds versus senior bonds, there is an impact of risk appetite.

Spreads usually widen when risk appetite falls and tighten when risk appetite increases. From this chart there seems to be a lead–lag relationship between risk appetite and subsequent credit spread changes. If the leading character of risk appetite holds for the future it may provide valuable trading signals for subordinated financials.