The debt markets have outperformed themselves during 2013, harkening back to the boom years of 2005 through 2007. That is, if you measure performance by the amount of liquidity in the market.

In the context of an overall low interest rate environment, pension funds, insurance companies, mutual funds, hedge funds and other alternative capital sources have sought to invest in higher-yielding instruments provided by the bond market and the broadly syndicated loan market. For instance, the second lien loan market, notably absent during the latest financial crisis, is back with renewed enthusiasm. Credit demand has continued to outstrip credit supply, which has led to mostly opportunistic transactions, consisting of re-financings, re-pricings and to a lesser extent dividend recaps. Underlying the low interest rate environment is the Federal Reserve’s continued bond-buying program, known as quantitative easing. As a case in point, when the Federal Reserve hinted that it would start to taper the quantitative easing during the spring, the bond market went through a sell-off in May and June. The big unknown is not whether the tapering will occur, but when and at what pace. A return to more normalized interest rates is inevitable. The question is what volatility will this engender.