Declining Unemployment Narrows Spreads
December 28, 2009
Fewer initial state unemployment claims will contribute to a continuing narrowing of high yield spreads, according to a report published today by Moody’s Investors Service.
As of Dec. 19, weekly initial state unemployment claims reached their lowest point since Sept. 6, 2008. The four-week moving jobless claims average was 465,000, the lowest since Sept. 30, 2008, and down by almost 30% from its peak of April 4, 2009.
This drop in jobless claims indicates a further narrowing of Moody's recent high yield bond spread of 587 bps. Moody's uses a composite of several speculative-grade bond yield averages to determine this spread.
“The ongoing shrinkage of jobless claims portends an economic recovery that will be sufficient for the purpose of reducing corporate debt repayment risk,” Moody’s analyst John Lonski wrote in the report.
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