Interest rates, which have sat at or near historical lows during the past seven years, have led many investors to seek additional yield in the form of credit risk. The recent trend, and its popularity, gives us an opportunity to determine if this risk historically has been rewarded by examining the credit risk premium in investment-grade as well as high-yield corporate bonds.
To measure the credit risk premium, my colleague Brian Haywood first looked at how investment-grade and high-yield corporate bonds have performed relative to Treasurys:
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