From the Review Workshop Questions: If there is a forecast of rising interest rates and narrowing credit spreads, the result will be a positive effect on the surplus because “Narrowing credit spreads lead to outperformance of comparable credit risk-free fixed income assets.” They cite decreasing credit risk in the high yield bonds.
Why would narrowing credit spreads lead to a surplus? Do they mean the risk-free fixed income rates improve relative to the high-yield bonds?