My colleague Arpit Gupta has just pointed me to a report by Matt Wirz and Serena Ng on the headlong rush back into subprime mortgage bonds:

Their comeback underscores how investors have regained the courage to take on more risk as the economy recovers, pushing up the prices of a broad swath of riskier assets, from commodities to junk bonds to stocks.

But to what extent is this borrowed courage premised on taxpayer guarantees? To borrow Steve Randy Waldman’s distinction, is this risk-bearing behavior — or is it risk-shifting behavior? The answer isn’t obvious:

Mortgage bonds still have significant risks. While the U.S. housing market is expected to eventually recover, protracted foreclosure battles and the still-weak economy could mean that cash flows that investors expect the bonds to receive could take longer than expected to materialize. Analysts generally view their downside risk as limited at the bonds’ current prices, even though delinquency and default rates among the loans backing them remain high.

It could be that investors in subprime bond really have no expectation of being rescued, and they’ve simply decided that the risks are worth bearing at a low enough price. I’m skeptical.