Corporate Bond Spread to Treasuries at Seven-Year Low

The extra yield corporate bonds offer over Treasuries (BUSY) was at a seven-year low before inflation data forecast to support the Federal Reserve’s policy of cutting bond purchases while keeping its key interest rate near zero.

Bonds in an index of investment-grade and high-yield company debt offered 1.59 percentage points more than government securities on average yesterday, the least since July 2007, Bank of America Merrill Lynch data show. A government report today will show consumer-price inflation slowed in May. The Fed begins a two-day meeting today after trimming debt purchases at its previous four gatherings. Traders are pricing in a 59 percent chance policy makers will raise interest rates by July 2015.

“Yields are so low that people are looking everywhere, and stretching the boundaries of what they invest in to enable them to get some more yield,” said Marc Fovinci, head of fixed income in Portland, Oregon, at Ferguson Wellman Capital Management Inc., which has $3.5 billion in assets. “If you believe in ‘lower for longer,’ then ‘tighter for-longer’ is the corollary to that.”

Bloomberg

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