Bonds spreads start to narrow

Written by Nathan White, chief investment officer

photo by epicharmus

Credit spreads are an indicator of the willingness of investors to own "risky" assets. They measure the difference between the yields on various debts versus U.S. Treasuries.

Spreads widen when investors seek the safety of treasuries and narrow when they feel it is "safe" to come out of the woods. One of the signs of the easing of the credit crisis would be a narrowing of the credit spreads. A variety of spreads have begun to contract off the recent historic highs.

Agency bonds have contracted from around 165 basis points to 86. Investment grade corporate credit is down about 98 basis points and high yields have a contracted 434 basis points. Hopefully this trend can continue and would provide some much needed support for the equity markets.