@Reaper: I don't know why the FRM /
bond spread looks steady compared to the VRM / BoC rate spread.
Not exact matches
But it
looks like a high probability bet that the
spread between the returns on stocks and
bonds should be wider in the future than it has been for the past three decades or so.
Here, we take a
look at the more recent June «
Bond Market Group» minutes; the main concern was that, despite a functioning JGB market, there has been a notable increase in bid - ask
spreads and general decrease in liquidity since the start of aggressive «QQE» last October.
This led to a substantial tightening of credit
spreads, which made Russian
bonds look expensive compared to their peers in other emerging markets.
Investors will also
look at credit
spreads for clues as to where the
bond and other markets may be headed.
There is a common misconception that
looking at credit
spreads gives you a complete picture of the credit risk of one
bond compared to another.
If you are
looking at a 10 year corporate
bond which is yielding 5 % for example, and at the same time the 10 Year treasury
bond is yielding 2 %, then the credit
spread is 300 basis points (3 %).
By
looking at how the credit
spread for a category of
bonds is changing, you can get an idea of how «cheap» (wide credit
spread) or «expensive» (tight credit
spread) the market for those
bonds is related to historical credit
spreads.
In addition to
looking at credit
spreads for individual
bonds, investors will also
look at the credit
spread of different categories of
bonds.
Investors typically evaluate corporate
bonds by
looking at their yield advantage, or «yield
spread,» relative to U.S. Treasuries.
EM
bonds also
look like a relative bargain within fixed income after this year's
spread widening.
I
look at the
spreads offered for various classes of domestic
bond risk.
This
spread has a ways to tighten before equities» relative valuation starts to
look less attractive (it's when the stock /
bond PE ratio is closer to 1 that investors should start to worry).
Instead of
looking at individual stocks, now I might be focusing on asset classes, making sure I'm diversifying with 12 or 14 different asset classes — small companies, value companies, domestic, US, international, even on the
bond side making sure I'm
spreading that risk out into all different types of
bonds.
What goes through your mind when you
look at the rising
spreads on high yield
bonds?
Another incident seemed unrelated at the time, but today seems very related — one day I asked the high yield manager what sorts of
spreads he
looked for in buying
bonds.
As for distressed, if we
look at high - yield
bonds as a proxy, 5 % yields now leave little room for error... and let's not even mention Euro high - yield, where the
spread actually fell below the most recent default rate!?
Wall Street
looks at
bond spreads and P / Es.
The good
bond manager
looks at the risks versus the incremental yields, and
spreads his investments among a mix of good risks.
In examining the subparts of the S&P 500 ®
Bond Index, we can take a deeper
look at how credit
spreads have changed for AA - and BB - rated corporate
bonds issued by constituents of the S&P 500.
just as
bond managers
look at yield
spreads to commit capital, so should investors in risky assets aim for a margin of safety in what they invest.
However, a
look at
spreads in the high yield corporate
bond market yesterday shows that investors were warming back up to the sector (at least temporarily).
«Investors have either changed their perception of the risk in those subordinate
bonds (non-investment grade) and are willing to accept lower
spreads, or investors are
looking at fairly unattractive investment alternatives and have decided that CMBS is a good place to be,» says Hurley.