Government Yields Do Not Affect Corporate Bonds The Way You Think
(3 min read)
In any given country, government bonds are thought to be safer than corporate ones. After all, governments have the ability to tax or even print money through their central banks. This would suggest that corporate bond yields should generally be higher than government bond yields. And many investors think that government credit risk is a component of corporate credit risk. However, recent research by the Federal Reserve of San Francisco and Wharton Business School questions this line of thinking. In their paper, ‘Corporate yields and sovereign yields’, they find that when government bond yields are high, corporates can often issue at lower yields...
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