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Author: solasis Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 297  
Subject: bond spreads - corporate debt risk premium Date: 10/26/2001 4:42 PM
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the spread between high grade corporate bonds (A and above) and the 10 year US treasury has widened in the past month to levels seen only a few times since 1945.

recent cycles (weekly data rounded to the nearest 10BP; 100 BP=1%)
cycle low - cycle high
1970 60 1971 220
1973 70 1974 240
1978 50 1980 220
1981 70 1982 340
1984 90 1986 250
1989 80 1992 200
1994 80 1998 240
2000 140 2001 340?

after hitting nearly 350 Basis points a few weeks back spreads have closed back to the 280-300 range, but historically this is still a very wide spread ( a high risk premium). a chart of the spread in 10 year durations over time can be found at ed yardeni's website

http://www.yardeni.com/public/mktcycle.pdf

This anomalously high spread is particularly interesting because of the dwindling supply of higher grade corporate debt. ford, for example, came public this week with a huge debt offering but it is rated BBB.

tr

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