Y-axis: spread between risky debt and treasury debt. X-axis: time. Is it safe to say that the spread curve is ALWAYS upward sloping? Thanks
NO. It is usually upward sloping, but for very bad creditors it can be downward sloping: most likely they will default soon, but, if they don’t, is because their situation has improved and this is why you get a downward spread curve.
i think it might invert towards the end of recession
or what MrDonadei said, i even think i read it somewhere
I don’t believe that this an absolute. If you overall term structure is relatively flat the spread curve could also imitate this flat structure of yields (or an inverted structure). I would say however that it is typical in nature to have an upward sloping yield curve. Think of a treasury yield curve and then just add your spread to each key rate.
Sorry!!! My fault…when I put “time”, I meant maturity of the bonds. When I read some post, I understood perfectly. If I put maturity of the bonds on the x-axis. Is it say to say that the spread curve is always upward sloping?
in theory, i dont see a reason for an inverted spread curve. but, if long maturity corporate issues are hard to find, premiums may bring the spreads down.