High-yield bonds in the U.S. are less expensive by comparison with Treasury securities than a decline to record-low yields would indicate, if history is any guide.
As the CHART OF THE DAY depicts, the yield on the Barclays U.S. Corporate High Yield Index fell below 5 percent this week. That hadn’t happened since at least 1987. The top panel tracks the index’s yield since 1995 and the bottom panel shows the corresponding gap, or spread, with Treasury yields.
When the high-yield indicator crossed the 5 percent threshold three days ago, the spread was more than 400 basis points, or 4 percentage points. That was well above the record low of 233 basis points in May 2007, before the onset of a financial crisis spurred demand for safer investments.
“You really just have to look at the spread and say ‘I am getting a lot more. I want the income’,” Brad Rogoff, head of global credit strategy at Barclays Plc, said yesterday during an interview on Bloomberg Television.
The gap is unlikely to approach its earlier low in the absence of “a good growth environment,” the New York-based strategist said. “We can see 400 for a while.”
The yield on the Barclays index peaked at about 23 percent and the spread widened to 1,971 basis points during the crisis, tied to a housing-market collapse. Both highs were reached in December 2008.
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