Chart showing corporate and government bond yields by Curious Cat Investing Economics Blog, Creative Commons Attribution, data from the Federal Reserve.The changes in bond yields over the last 3 months months indicate a huge increase in investor confidence. The yield spread between corporate Baa 10 year bonds and 10 year treasury bonds increased 304 basis points from July 2008 to December 2008, indicating a huge swing in investor sentiment away from risk and to security (US government securities). From April 2009 to July 2009 the yield spread decreased by 213 basis points showing investors have moved away from government bonds and into Baa corporate bonds.
From April to July 10 year corporate Aaa yields have stayed essentially unchanged (5.39% to 5.41% in July). Baa yields plunged from 8.39% to 7.09%. And 10 year government bond yields increased from 2.93% to 3.56%. federal funds rate remains under .25%.
Investors are now willing to take risk on corporate defaults for a much lower premium (over government bond yields) than just a few months ago. This is a sign the credit crisis has eased quite dramatically, even though it is not yet over.
Data from the federal reserve: corporate Aaa – corporate Baa – ten year treasury – fed funds
Related: Continued Large Spreads Between Corporate and Government Bond Yields (April 2009) – Chart Shows Wild Swings in Bond Yields (Jan 2009) – investing and economic charts
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[...] I wrote recently bond yields in the last few months show a dramatic increase in investor confidence for corporate [...]
[...] yields have remained low, with little change over the last 4 months. Earlier in the year, yield spreads decreased dramatically, and those reductions have remained over the last 4 months. The federal funds rate remains under [...]
I believe that the risks of inflation are so low that TIPS are not a good way to invest some of your investment portfolio. At these low rates I agree TIPS are hardly a wonderful investment but I think it is worth sacrificing some yield to gain if inflation does return in a few years…