That yield spread is dwarfed by the potential gain (or loss) from exchange-rate shifts.
The option-adjusted yield spread is more like 57 basis points (hundredths of a percent), according to Bloomberg.
Also hurting BofA, along with other lenders, has been the narrowing yield spread.
The chart displays the yield spread, as calculated by Moody's Investors Service, between junk bonds rated speculative and seven-year Treasurys.
Already, the relative scarcity of Treasury paper has widened the yield spread between Treasurys and other debt instruments like agencies, mortgages and corporates.
Of course, if you are investing through a tax-favored account, there is no state tax, and this component of your yield spread is gravy.
But the buyer had no inkling about the extra 2% finder's payment (called a "lender's rebate" or "yield spread premium") from the lender to the broker.
Furthermore, we found in the 50 years of data that there was a strong correlation between the size of the earnings yield spread and expected future returns.
The high yield spread versus Treasuries is 162 basis points (bp) wider than it was when the economy was already one month into recession in the last cycle.
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The present yield spread over Treasuries is also below average.
Similarly, the dividend yield spread over the 10 year treasury yield has averaged 100 bps since the start of the modern REIT era, which compares to 180 bps today.
If a broker puts you into a sub prime loan and you're A credit, they receive what is called the yield spread premium, which also synonymous to a kick back.
Some may argue that the present, wider high yield spread is a function of the low Treasury yields, but historically there has been little correlation between the spread-versus-Treasuries and nominal Treasury yields.
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Early 2008: The last time we had a Negative Yield Curve Spread was just before the 2008 financial crisis!
As this article is being written, 10-year Treasury yields have fallen to 2.98% and may be going even lower, creating a flattening yield curve spread.
Implied yields on 90-day bill prices slipped by three basis points along the curve and the lower yield environment spread to the long end where benchmark 10-year yields dropped by three basis points to 5.45%.
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The 10-year Treasury note keys off this 3% yield with a spread of as much as two percentage points.
The current yield is 6.78% and the spread between its yield and the 10 year T-Note is still at historically low levels.
Here is a chart which shows the credit spread of high yield bonds vs. the default rate of high yield bonds since 1997.
In theory this was a good bet: The house could reap a tempting spread between the yield on the derivatives and its own cost of borrowing.
As a final note, the historically narrow spread between high yield bonds and Triple-B corporates does not mean that the high yield asset class is materially overvalued.
Expectations are that with a new asset-purchasing program, the Fed will match the size and pace of Operation Twist, but that Treasury purchases will be spread across the yield curve, said Nomura.
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Spanish sovereign debt might be a good bet because its yield is 6% and the spread over German debt is over 4%.
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Does this mean that high yield bonds are over-valued? (likely), that Treasury bonds are over-valued, since high yield bonds are priced as a spread above Treasuries? (very likely), and that high quality stocks in a universe of mostly overvalued liquid assets are relatively cheap? (likely).
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Just as in the past, high yield bonds trade at an interest rate spread over Treasury bonds, which are more liquid and less subject to default risk.
The green revolution, which spread enabling technologies of high-yield agriculture across the planet, resulted in doubling of grain production.
In the year to date, however, narrowing spread levels have helped high-yield bond returns narrowly exceed those of loans (see below).
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