Treasurys Weaken as Stocks Stabilize

In one sign of investors’ increasing expectations for growth, the gap between the yields on two- and 10-year government notes has widened to about 0.302 percentage point from 0.2 percentage point in August, the smallest difference since 2007.

Rising yields force investors to reassess the value of companies and make bonds increasingly attractive compared with stocks

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Investors’ Curious Comfort With Junk Bonds

However, given that the U.S. and global economies are very far into a long period of growth and more interest-rate rises are in the cards, investors should be more concerned that they aren’t getting paid enough for the risk of downgrades and, potentially, defaults when the slowdown comes.

The good news is that investors have some idea of this, which is why a bigger gap is opening up between spreads on BBB-rated bonds and AAA-rated bonds.

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