In the question they show that the 10-year treasury bond less federal funds rate spread has increased. The answer explanation states the widening of the interest rate spread indicates that the yield curve has steepened and that a flattening yield curve would be indicative of a weakening economy. Why is this?
We know that in an improving economy, corporate bonds outperform, because their spreads narrow (tested in question 6, 2011 Exam). Therefore, in a poor economy, corporate spreads increase.
So why do increased corporate spreads over Treasuries indicate a weakening economy but increased t-bond less fed funds spread indicate a strengthing economy?