You're Getting Paid Far Less To Hold Bonds Now

The rally in all kinds of bonds this year means that risk-taking investors are once again willing to accept far less additional yield over U.S. treasuries these days.

The option-adjusted spread shown below is essentially the additional basis points of yield that bonds must pay over government bonds. The chart shows that while investors required almost 10% (1,000 basis points) of additional yield from global emerging markets bonds back in December 2008, today all they require is about 4% (400 basis points) more than U.S. treasuries.

Don’t forget that U.S treasury yields, that these spreads are based off of, are extremely low now as well. Thus in the bond market today, investors willing to take on risk for a far lower price.

(Chart via Econompic)

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