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The charts above display the yield spreads between Corporate Bonds, Treasury Bonds, and Mortgages. All bonds in this comparison have long maturity dates. Therefore, the main differentiator is the underlying credit risk - in contrast to the the duration, which is the differentiator on the Yield Curve page.
Bond yield credit spreads represent the difference in yields between two bonds of similar maturity but differing credit qualities. They serve as a measure of the additional compensation, or spread, investors require for assuming the credit risk associated with a specific bond.
Credit spreads tend to widen in economic recessions and indicate an increased risk of default as well as reduced liquidity in the market. This widening reflects investors' heightened demand for greater compensation in return for assuming the credit risk associated with lower-rated bonds because of concerns about the issuer's ability to meet debt obligations amid challenging economic conditions.
The chart above gives a different view of the same data from the spreads above.
The 30-Year Fixed Rate Mortgage Average is the average rate based on mortgages with a 30 year duration in the United States. The data since 1971 is provided by Freddie Mac.
The Baa Corporate Bond Yield series is based on Baa rated bonds with maturities 20 years and above. Baa rated bonds and higher (according to Moody's credit rating) are considered "investment grade".
The Aaa Corporate Bond Yield series is based on Aaa rated bonds with maturities 20 years and above. Aaa is the highest credit rating issued by Moody's.
The 10-Year US Treasury Constant Maturity Rate is the interest that the US Government pays when it issues a Treasury Bond with a duration of 10 years. Debt issued by the US Government is generally considered to be free of credit risk, as the probability of default is almost non-existent. The spreads between Treasury Bonds with different durations are examined on the Yield Curve page.
Special thanks to Steven Sabol, creator of Capital Markets Data, for generously providing the data that led to the development of this page.
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