High Yield Spreads Defying Gravity

Yesterday, we heard several commentators suggest that JP Morgan's no-obligation purchase of Bear Stearns (was the $2 to cover shipping and handling?) had helped to calm tensions in the credit markets.  However, based on the movements of high yield bond spreads (using Merrill Lynch data), conditions remain tense.  As shown below, the spread between the interest rate on high yield bonds and comparable US Treasuries has risen to 862 bps, which is the highest level since 2002.  To put this in perspective, at their lows in June 2007, spreads were at 241 bps.