High Yield Spreads Near Record Highs

After surging more than 150 basis points in the last week, the spread between high yield bonds and comparable treasuries has surged to 1,096 basis points based on the Merrill Lynch Index of High Yield Bonds.  Additionally, at current levels the spread is only 2% off its record high from October 2002.  In other words, with the 10-Year US Treasury currently yielding about 3.75%, companies with 'junk' rated credit currently have to pay just under 15% to borrow money.

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Comments

[xanthus4966:]

I think this is an ecellent time to go hi-yield. The spread rarely exceeds this level so taking a position now has lower downside than in other portions of this market cycle. With Congress causing us the taxpayer to pay for corporate jets, with no upside potential for us, we now have to increase our risk to compensate for the overall gross equity loss. Long term rates will be significantly lower in three to five years, as the true stupidity of our lawmakers comes out.

2008 Oct 02 09:48 AM

[JasonC:]

It isn't just junk, it is finance and real estate paper of high qualities. Morgan Stanley notes can be found yielding up to 30%, and 20% in your choice of maturities and coupons etc. They just got a $9 billion infusion from the second largest bank in Japan and hae $25 billion in market cap ahead of even the preferred, but the notes are going begging at 20%.

2008 Oct 02 11:37 AM