No. of Recommendations: 2
I've found a couple of different sources for computing spread to treasury as well as default rates. Recovery rates, however, have been darn near impossible to get, although i've heard stats of 60% being average. (is this true?)

The way I calculate expected return above treasury from junk bonds works like this**:

Spread: (Junk bond yield - 10 year yield)

Loss: (default rate*(1-recovery rate))

Expected return above treasury = spread - loss

So, a junk yield of 12% and a treasury yield of 5 gives a 7% spread.
A default rate of 10% with a recovery rate of 60% is a 4% loss.
expected return above treasury is therefore 3%.

Where to find spreads:

I found two places:

Standard and Poor's The Outlook
I get this for free as a TD waterhouse customer,
it's likely that your broker may have access to it as
well. You might be able to get it for free by
registering at www.standardandpoors.com

Data from this source look about 1 week old, they
rate both investment grade and below grade bonds.

Moody's Monthly Default Reports
Provides spread to 7 year treasury plus default
rates for all rated bond categories. This info
looks to be about a month old.

http://riskcalc.moodysrms.com/us/research/mdr.asp

Where to find default rates:

Moody's Monthly Default Reports

See link above.

Where to find recovery rates:

I haven't the faintest idea.


Thanks to everyone who gave a helping hand.
- FjordReject
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