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Author: Wradical Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35392  
Subject: Re: Hyield Date: 1/17/2006 6:27 PM
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The junk sector could be in for a hit; on the other hand, it's a market all to itself, in some ways.

Besides the oft-noted flat yield curve, plotting yield vs. maturity, what I find, to my dismay, is how little you get for yield in the high-end (Investment-grade) rated bonds these days.

My own informal, unscientific scan of corporate bonds available shows me that:
AA-rated bonds are going for 25-50 basis points over Treasuries.
A or A-1-rated bonds are going for 60-90 basis points over Treasuries.
(With same or close maturities.)
So - why buy the corporates unless you're a pension fund money manager, who needs every basis point of yield to justify your existence?

If you're a tax-paying citizen, the corporate bonds are subject to state and federal income taxes; the Treasuries, to federal only. So by the time you take out the state tax on your bond yield, you're very close to the point where you get nothing for assuming normal commercial credit risk on the corporates. Granted, the A to AA bonds are quite good, but for the little extra you're getting, why not stick to the Treasuries?

I'm not buying bonds, now, anyway, just grumbling.

Bill

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