Summary
Treasury bond yields have been declining in the second half as concerns have mounted over a slowdown in jobs growth. Corporate bond yields have headed lower as well. As a consequence, spreads between corporate and Treasury bond yields have been steady in recent months, remaining narrower than historical averages. For example, the spread between AAA-rated corporate bonds and 10-year government bonds in November was 112 basis points (bps), in line with the spread of 114 bps in May and lower than the historical average of 122 bps. The gap between the government 10-year bond yield and a BAA-rated bond (still investment grade) in August was 172 basis points, below the historical average spread of 228 bps and narrower by about 15 bps since the spring. We watch these spreads closely for several reasons. First, from an asset-allocation standpoint, tight corporate bond spreads signal that corporate bond prices are a
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