October 2nd, 2007
Fed Easing Flowing Through to Market-Based Rates
The risk premium for corporate bonds (the difference in rates between treasuries and Baa-rated corporates) is edging back down after its mortgage meltdown-induced mini-spike. It seems the Fed’s rate cuts are carrying through to the general market.
A lower spread is positive for the economy and for corporate earnings, as it means companies don’t have to pay as much (relative to riskless treasuries) to borrow money that can then be invested in profitable opportunities. In effect, it lowers the bar as to what makes for a worthwhile investment. A low spread has a mixed message for stock market investing - good for earnings/economy per above, but means investors are being paid less to take risks.
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[…] has clickable chart - Fed Easing Flowing Through to Market-Based Rates - The risk premium for corporate bonds (the difference in rates between treasuries and Baa-rated corporates) is edging back down after its mortgage meltdown-induced mini-spike. - Stock Market Beat http://stockmarketbeat.com/blog1/2007/10/02/fed-easing-flowing-through-to-market-based-rates/ […]