It's holiday time and we need some good news. The Fed has been trying to bring down interest rates for higher quality corporate debt. Is it working? The answer is yes. Already the risk premium for bonds of JP Morgan Chase, Bank of America and GE have fallen by a quarter point. New offerings by Disney and Safeway were priced at 5 percentage points above comparable Treasury yields. Even junk bonds saw a slight improvement.
The Fed's willingness to buy mortgage bonds had the effect of dropping their yields a quarter percentage point. This is on top of an already previous three quarter percentage point reduction. Rates of jumbo mortgages have dropped to 6.91% from 7.25%. Even debt yields issued by banks insured by the FDIC have dropped. Citigroup's post-bailout bonds, which were priced at 3%, are now trading at a yeild of 2%.
So, we do have a bit of cheer for the holidays.
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