Credit spread will widen. 1. Buy 7-year Ba2/BB** industrial corporate bonds; Sell 7-year Baa3/BBB industrial corporate bonds.** Positive or Negative to the portfolio’s value? This question is in my blind zone.
You have to know that Baa3 is higher rating than Ba2 . ( more letters are better letters)
When credit spreads are widening , it is a flight to safety , junk or subinvestment grades are going to get hammered , so better to sell the Ba2 lower debt rated bond and buy the Baa3 higher debt rating bond.
Since the manager is doing the opposite , portfolio value should suffer ( negative outlook )
i would back ^ up.
bad quality bond suffers more than high quality bond.
you’d lose money in both long and short positions.