HiCould someone please shed some light on this seemingly basic question? I have some bond spreads = yield of corporate bond (t) - yield of treasury(t) where maturities are matched. This is a rough estimate of corporate bonds - I am aware that CDS spreads may be better but I don't have access to them. For a set of cusips, I am getting some negative bond spreads for both investment and speculative grade bonds. Btw, these bonds have no optionality. Is this normal? What does this mean? Am I wrong in my estimation? Thank you very much.

This is not normal. Not that it couldn't happen, but especially the notion of a speculative grade bond with a negative yield spread to a maturity matched treasury is highly suspect. Can you give us a concrete example, i.e. name, maturity, date & yield?

CUSIP: 36186CAH6 (GMAC LLC). It's 5 year bond, coupon is 6.625. I got the yield data from Bloomberg. I take the diff btwn the yield of the bond and the 5 year Treasury (Const Mat) taken off from FRED St. Louis. January 2005- June 2005, every single day, I get negative spreads. Btw, I use the yield data from Bloomberg (interpolated ones) so that even those days that have no yield data, they do the interpolation. I'm not looking for perfection but I wonder if using the interpolated yields are introducing even more bias and more errors. As for IG bonds, I get negative spreads, too. I guess this would depend on the coupon of that day?Please help - thank you so much for all the insight.

Liquidity premium is lower on the corporate bonds?Treasury seen as more likely to default?Tax effects?

This bond was issued in July 2007 and its yield has not been anywhere close to Treasury yields ever since. You looked at it for 2005?

GMAC bonds with negative spreads. I don't think so.GMAC was bankrupt before the credit crunch.

Hello everyone. Sorry for the delayed response. You are absolutely right that there were no negative spreads. The calculation was an error on my part. In fact, I learned a better way to calculate interpolated spreads using O'Kane and Sen's paper "Credit Spreads Explained". When using that methodology for my portfolio of corporate bonds, I am able to calculate spreads matching maturity. Apologies for the inconvenience!