Credit Risk Yield Spread Increases

In recent years, the yield spread for low-grade or junk bonds has been relatively low. However, recent economic and Federal Reserve indicators have led junk bond investors to demand a higher yield spread. For example, Global Management LLC recently sold eight-year junk bonds with a coupon rate of 9.25 percent. When the bonds were originally marketed, the coupon rate was 8.5 to 8.75 percent. And AK Steel Holding had to increase the coupon rate in its new bonds from 7.5 percent to 7.75 percent. For BofA Merrill Lynch, the yield spread that investors require for that company's high yield debt has increased from 3.8 percent to 4.05 percent.