More Good News For Quality Bond Issuers

Yield reduction was greatest at top tier, C-rated bond yields are also lower.
Ed ZwirnJune 15, 2001

A mixed bag for corporate bonds this week, with yields on the highest-rated bonds down, while investors in most of the more speculative grades were demanding greater payoffs.

According to bond index figures supplied by Merrill Lynch to (see chart below), typical option adjusted yields for bonds with a triple-B Standard & Poor’s rating or better were lower across the board.

The reduction was greatest for bonds at the top of the ladder, with the typical triple-A yield at 5.618 percent as of the close of business June 14, more than 11 basis points lower than the prior week.

For double-A paper, yields also declined by about 11 basis points on the week; single-A yields were down nine basis points; and triple-B, 10 basis points.

On the other hand, the yield on double-B paper was up seven basis points; and single-B, 54 basis points.

The poorest quality paper, reversing a recent trend, outperformed last week. The yield on C-rated bonds stood at 23.854 percent, versus 23.918 percent the prior week.

Most bonds also 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 14, 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 21.674 percent one year ago, or 1,540 basis points over Treasurys.

Indicative Corporate Bond Yields/Spreads

(10-year industrial, option adjusted) (Wk ending June 14-2001)

Rating** Yield Spread* Yield Spread* Yield Spread*
AAA 5.618% 74 5.731% 75 7.330% 101
AA 5.854 95 5.959 96 7.553 124
A 6.330 133 6.424 132 7.845 153
BBB 7.117 199 7.215 199 8.469 218
BB 8.761 376 8.690 358 10.401 410
B 13.367 833 12.830 770 12.026 574
C 23.854 1877 23.917 1873 21.674 1540

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

Source: Merrill Lynch & Co.