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Bond Yield Spreads Increase
The yield spread spread between investment grade corporate bonds and non-investment grade, or high-yield bonds, is often viewed as a risk premium on credit risk. So far this year, this yield spread has increased, signalling an increased cost to credit risk. For the first quarter, $454 billion on new investment grade corporate debt was issued, an increase from the $446 billion sold in the first quarter of 2015. However, high-yield issuance was only $36 billion, down dramatically from last year's $86 billion. While low interest rates have garnered much of the attention in the press, non-investment grade bond yields have increased. For example, Western Digital recently sold $3.35 billion in bonds at a 10.5 percent coupon. The credit rating on the bond's was BB+, just one notch below investment grade.
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