Investment grade corporates hold steady

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Consistent with a leveling of the rate of increase in the US trade deficit in 2006, the price of investment grade corporate bonds has been holding steady, as the graph indicates.

Driven by a trade deficit that has been increasing since the early 1980s, the persistent flow of funds into the US bond market has caused bond yields to fall.

The graph suggests that from a long-term perspective, corporate bond yields in recent months have been flattening out to match the reduction in growth of the trade deficit, rather than moving along with Federal Reserve short-term interest rates.

Long Down Trend in AAA Corporate Bond Yields