As the economy recovers from a recession, what changes can be expected in the yield spread of corporate Baa bonds and U.S. government bonds?

Question

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Direct your attention to total spread between corporate Baa bonds and government securities (corporate Aaa's fall somewhere in between). Over the long term, the spread appears to be between 75 and 100 basis points. Nevertheless, at certain phases of the business cycle, the yield spread changes. For example, in the early phases of a recession, confidence tends to be at low ebb, and as a consequence, investors attempt to shift out of lower-grade securities into stronger instruments. The impact on the yield spreads can be observed in the recessions of 1969-70, 1973-75, 1981-82, 1990-91, 2000-01, and 2009-10.

As the Economy Recovers from a Recession, What Changes Can