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"It also doesn't explain why commercial paper yields are at historic lows relative to T-bills. Corporations are a great bet for the next 3 months, but not the next 10-20 years? Maybe, but that's not the way its worked in past recessions. And it doesn't jibe with corporate equity action where all stocks were graded up relative to treasuries (and still are) and blue chip companies were graded up relative to less secure ones. There might be some answers to this inconsistency, but I haven't found them. I'd be glad to hear ideas."rem

"liquidity premium? i don't have the answer either - but i think it is important to point out the anomaly." Solasis

Could be.

Could also be that corporations aren't issuing commercial paper and locking in long term rates (again I miss Lonski's articles from Moody's). I know GMAC, who was famous for funding with short term paper then swapping it, did a $6 billion deal in the bond market instead of the cp market last week.

This is an interesting idea because from a supply/demand standpoint it would make the longer term debt look more risky relative to treasuries(adding more supply to the long end of the curve), while arguably the company is running less risk by not having to roll the paper every 3-12 months. Dunno.

"If Social Security is in big surplus now but won't be ten years from now, why wouldn't corporate pensions be in the same boat?"rem

"1. different cash flow dynamics
2. what pension plan? the majority are defined contribution plans now." Solasis

Good point about defined contribution plans. So if we throw that idea out that still leaves us searching. I see a lot of reasons that the spread may be out of whack due to technical factors (the risk free yield is artificially depressed relative to other returns), and as I look at balance sheets, they're better than 10 years ago when the spread was quite a bit narrower (with higher overall yields). That's my story and I'm sticking to it.:)
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