Long term perspective

In 2000, the U.S. Treasury announced that they would borrow less and therefore issue fewer securities. This lifted prices of Treasury securities and reduced their yield. However, it did not imply that corporate bond yields would be lower, so the gap between corporate bond and Treasury yields widened. In 2001 and 2002, the gap widened further – this time caused by deteriorating credit conditions in a softening economy. The gap narrowed slightly from 2003 to 2006 but widened in 2007 over subprime problems and their impact spreading to other sectors. 

Short term perspective

The 10-year Treasury note yield fell 38 basis points in November while average yields on Aaa corporate bonds declined 22 basis points during the month. Flight to quality over subprime issues is the main reason for the divergence.