The yield is the sum of the equivalent Treasury yield plus the spread over that Treasury yield. The yield on the asset class is near all-time lows, hovering below 3 per cent. The rate component is simply the nominal government yield. In 2019, Treasury rates fell, lifting the prices of investment grade bonds. The benchmark ICE Bank of America Merrill Lynch US Corporate Index returned 14 per cent last year, the best performance since 2009.
About half of that return has come from a decrease in Treasury rates, which are now near their lowest levels on record.
The spread component is the additional yield over the Treasury rate received for taking on credit risk — primarily company — or industry-specific risk. Factors like credit metrics and cash flow growth affect this part of the return.