Money and Financial Markets
The spread between corporate and government interest rates typically rises during recessions and then declines when the recovery gets under way. Although many consider the recession to be over, long rate spreads have risen more than 50 basis points (bp) so far this year, despite a drop of about 50 bp in AAA- and BAA-rated corporate bonds. This decline, however, has been more than offset by the fall in the 10-year Treasury rate. On the other hand, the spread between three-month commercial paper and the three-month Treasury bill has remained fairly flat in 2002 so far, with little movement in either rate. One possible explanation for the drop in long rates is that the real interest rate has fallen. This explanation is confirmed by a fall in the 10-year Treasury inflation-indexed securities (TIIS) yield, which is a real interest rate.
Suggested citation: "Money and Financial Markets," Federal Reserve Bank of Cleveland, Economic Trends, no. 02-10, pp. 05-07, 10.01.2002.