Question

Why are yields on corporate bonds higher than yields on Treasury bonds? What is a credit spread? Today, are those spreads unusually wide or unusually narrow? Why? What are junk bonds? Is it ever a good idea to invest in junk bonds? Why are yields on municipal bonds usually lower than yields on Treasury bonds of the same maturity? Are munis free of default risk? What is a credit analyst?

Answer 1

Yield on the corporate bonds are higher because the risk of the corporate bonds are always higher than the treasury bonds and treasury bonds are always government-backed whereas corporate bonds are not government-backed.

Credit spread is the quoted rate of return on two different investment but those both investment will be having similar rate of return.

In the present scenario, credit spread is relatively higher because there are higher risk involved and those who are junk bonds are relatively priced lower and quality bonds are relatively priced higher

Junk bonds are those bonds who have very high default risk and they have also a risk on the payment of the capital so these bonds are generally not considered investment grade.

Yields on municipal bonds are usually lower than the treasury bonds of the same maturity because the prices of maturity amount will be higher than the treasury bonds.

Yes, the municipal bonds are free of the credit risk and default risk because they are backed by the municipal Government and Federal government.

Credit analyst is a analyst who would be assessing the The creditworthiness of different companies and assigning and grading the various bonds which have been issued by ucompanies and stating those bonds are either investment grades or junk bonds