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Long/Short Investments in L/S Equity: Valuation and Ideas,

​Current Bond Yields in the Market (as of Aug 31 2016)

According to a recently released piece of market research released by Moody’s, the following represent the average corporate bond yields in the market, aggregated by rating:

The yields do not go in strictly descending order – for instance, A1 yield is less than higher-rated Aa3’s and A3’s yield less than higher-rated A2’s. Market expectations do not always perfectly dovetail with the opinions of any given ratings agency. But it shows the approximate yield that one might expect at each tier.

The safest corporate bonds yield 40 bps over 10-year U.S. Treasuries, which are more or less considered the safest investment possible due to their guaranteed returns.

Default rates among corporate bonds occur at the following frequencies, according to Moody’s data:

Once one gets down to Caa1 debt -- the first tier considered “high-yield” or “junk” depending on your preferred term -- default occurs at about a coin flip’s chance after 10 years. For Caa3 debt, those same odds of default occur after just one year. 

After 10 years or more, credit ratings below Baa1 bring on expected default rates above 10%.