For the second consecutive week, corporate bond yields went up virtually across the board, while most issues lost only a little ground against Treasurys.
Investors are now demanding as much as 26 basis points more of absolute yield than they were two weeks ago for most bonds rated triple- B or better by Standard & Poor’s, while spreads to Treasurys are largely unchanged.
According to bond index figures supplied by Merrill Lynch to CFO.com (see chart below), typical option adjusted yields rose for all except single-B-rated bonds during the week ending July 5.
The increase was greatest for single-C-rated bonds, with the typical yield for debt of that quality at 25.248 percent as of the close of business July 5, more than 37 basis points higher than the prior week.
Triple-A yields rose about 26 basis points on the week; double-A yields rose about 23 basis points; single-A, 20 basis points; triple-B, 24 basis points; double-B, 19 basis points: and single-C, 37 basis points.
Only single-B paper improved, with its yield at 12.893 percent lower by about 80 basis basis points 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 88 basis points.
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 July 5, 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 20.961 percent one year ago, or 1,478 basis points over Treasurys.
Indicative Corporate Bond Yields/Spreads
(10-year industrial, option adjusted) (Wk ending July 5-2001)
|CURRENT||WEEK AGO||YEAR AGO|
* Basis points over Treasurys ** Standard & Poor’s
Source: Merrill Lynch & Co.