Bond Yields Back Up As Paper Tracks Treasurys

The Fed may have tried to ease money Wednesday, but debt yields went up across the board this week.
Ed ZwirnJune 29, 2001

Bond yields went up virtually across the board this week, but most corporate paper stayed in place when measured against Treasurys.

The result reverses several weeks of steady decline of absolute yields for most corporate bonds, and proved the opposite of the prior week, when indicative yields for most bonds rated triple-B or better by Standard & Poor’s were lower, while spreads to Treasurys widened.

According to bond index figures supplied by Merrill Lynch to (see chart below), typical option adjusted yields rose for all except single-B-rated bonds during the week ending June 28.

The increase was greatest for single-C-rated bonds, with the typical yield for debt of that quality at 24.877 percent as of the close of business June 28, nearly 47 basis points higher than the prior week.

Triple-A and double-A paper each saw yields rise about 17 basis points on the week; single-A and triple-B yields were up about 15 basis points; and double-B, eight basis points.

Only single-B paper held steady, with its yield at 13.694 percent lower by nearly one basis point than the prior week. Similarly, single- B bonds also performed the best in relation to Treasurys, with the typical spread in that category tighter by 19 basis points.

Using that measure, C-rated paper also performed the worst, widening by 30 basis points, after widening 60 basis points the week before.

But, despite this week’s backup, most bonds continue to give lower yields than they did one year ago.

Yelds and spreads on double-B bonds and better are significantly lower than they were on June 28, 2000, while lesser quality bonds are paying out more and lagging farther behind Treasurys.

This is most pronounced at the lowest rung of the credit ladder, where C-rated bonds yielded 21.362 percent one year ago, or 1,503 basis points over Treasurys.

Indicative Corporate Bond Yields/Spreads

(10-year industrial, option adjusted) (Wk ending June 28-2001)

Rating** Yield Spread* Yield Spread* Yield Spread*
AAA 5.780% 79 5.607% 79 7.367% 100
AA 5.998 98 5.826 99 7.596 124
A 6.472 136 6.320 133 7.889 153
BBB 7.263 204 7.112 204 8.483 215
BB 8.978 386 8.895 395 10.335 399
B 13.694 853 13.700 872 11.973 564
C 24.877 1967 24.411 1937 21.362 1503

Click here for last week’s article, chart.

* Basis points over Treasurys ** Standard & Poor’s

Source: Merrill Lynch & Co.