Long Term Perspective
Equity investors know that various sectors of the economy perform differently over the business cycle. Thus, stock prices will ebb and flow with or against economic activity. Similarly, bonds in various sectors of the economy will bear different risk levels, just like stocks, depending on economic activity. For instance, among this group (utility, finance and industrial), finance sector bonds offered yields that were lower than the industrial and utility sectors, probably because these were viewed as having lower risks of default over the time horizon.

Short Term Perspective
In 2005, the spreads between corporate bond yields and the 10-year Treasury note increased across the board. For utility bonds, the spread increased to 96 basis points from 68 basis points in 2004; for finance sector bonds, the spread increased to 58 basis points from -2 basis points in 2004; and for industrial bonds, the spread increased to 112 basis points from 65 basis points in 2004. In 2006, the spreads for all three remained high but narrowed moderately in the latter half. The spreads for utilities, finance, and industrial bonds stood at 65 basis points, 106 basis points, and 99 basis points, respectively, in November.

Yields fell 13 to 16 basis points in November, about the same as the 10-year Treasury note yield (-13 basis points).