Relationship between 10-Year U.S. Treasury Yields and BBB (option-adjusted) Credit Spreads
There is a strong and negative relationship between the levels of the 10-Year U.S. Treasury Yield and the BBB credit spreads, and changes in the 10-year treasury yield are offset significantly by changes in the BBB option adjusted credit spreads in the opposite direction. In terms of quantification, a 100-basis point (bp) change in the 10-year yield leads to approximately 50 bp point movement in BBB credit spreads in the opposite direction (month-month changes). The relationship is even stronger if we consider annual changes.