Schweser 2006 notes: A narrowing of credit spreads would least impact the value of which of the following investments? A. AAA corporate bond B. 30-year Treasury Bond C. BB+ rated corporate bond D. Callable corporate bond For me it was between T-Bond and Callable corporate bond. i chose D because i think that when credit spreads narrow T-Bond value would move too. and Callable bond is difficult to be compared with non-callable bonds. What do you guys think? btw, the correct answer is B.
Narowing the credit spread would affect the securities in the following order (as per me) 1. Treasurey Bonds are the least affected… then comes 2. Muni Bonds --------- (AAA) Highly Rates Corporate Bond 3. Lower Rated bonds (BB+ rated corporate bond), Junk Bonds ---- most affected It was basically Price Volatility they were looking out for as an answer to this question… Let’s hear what experts have to say on this??? - Dinesh S
I think it’s B because we are talking about credit risk spread 30 y Treasury Bonds don’t have a lot of credit risk therefore not a lot of credit risk spread so a change won’t affect them too much
credit spread is defined as the difference of yields with Treasuries. 30 yr treasury bonds have credit spread of zero. as a result their price is not affected by credit spreads.
Thank you guys! what i had in mind was confidence index from equity evaluation/technical analysis/smart money technitians. So i need to clarify a credit spread concept. Best of luck studying
Siberian_Golfer, what you should remember is that typically credit spread widen when stocks are expected to go down. Credit spreads reflect premium for credit risk.