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Market Update

Corporate Bond Premiums Recover to Pre-Lehman Levels

The market's faith in corporate creditworthiness has rebounded in the year since Lehman's collapse.

Sep 15, 2009

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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