Corporate Bond Premiums Recover to Pre-Lehman Levels
The market's faith in corporate creditworthiness has rebounded in the year since Lehman's collapse.
The market's faith in corporate creditworthiness has rebounded in the year since Lehman's collapse.
Corporate bond yield premiums--the yield difference between the Morningstar Corporate Bond Index and US Treasury Index--have retreated to approximately 1% below the premium at the time of the Lehman bankruptcy filing, and 3.75% below the December 2008 peak. Yield premium can be used as a measure of the market's broad view of investment-grade corporate credit-worthiness.
The current premium of 2.4% therefore suggests the market's view of credit worthiness is stronger than at the time of the Lehman filing, but still weaker than the 10-year average of approximately 1.5%. The commencement of credit deterioration was marked by Bear Sterns' subprime hedge fund collapse in June 2007.
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